Long-dated Hang Seng Index options saw active trading at their launch yesterday despite predictions they would be shunned by punters due to a lack of liquidity. On the first day of trading, 165 of the long-dated options changed hands. Brokers called the performance 'respectable'. Brokers and futures exchange officials said it would take time to tell if the new products could attract investors away from the over-the-counter market, where long-dated options were already traded. Long-dated HSI options have terms between 12 and 24 months and are traded in open outcry on the exchange floor. They allow investors who are taking a long-term view of the HSI to hedge their positions more easily. The head of equity-derivative trading at one US investment bank said: 'Retail punters won't trade such a long-dated instrument. Without all those smaller investors and local market makers, these options will never see the same kind of liquidity you see in the near-month [Hang Seng Index] contracts.' He said long-dated options could have a market as good as similar contracts that trade over-the-counter already, because big international investment banks would trade them. The Hong Kong Futures Exchange agreed it would take time for investors to become familiar with the products, but insisted enough demand existed to maintain liquidity. 'There is a learning curve in long-dated options,' Futures Exchange chief executive Ivers Riley said. The exchange said even longer dated options were possible, but not on the immediate horizon.
