OPEN interest on the Hang Seng Index options market is ready to pass its all-time high after just eight trading days this month, leading dealers to predict a good response to the options on individual stocks planned for next year. Last week's record trade of 6,301 contracts equals 17 per cent of futures trade and nearly 15 per cent of equity trade, and works out at an equivalent daily average of $500 million. Open interest, which rises during the month and falls back as each series of contracts expires, stood at about 16,000 contracts on Friday, just 1,500 off the record of 17,571 when the August contract expired. ''Trade is picking up quite a lot,'' said Leon Christianakis, director for dealing and derivatives at W.I. Carr. ''Investors are getting more confident.'' On the launch of individual stock options next year, Mike Gorham, director of SBC Derivatives (Far East), said: ''A lot of the road has been paved.'' W.I. Carr is ready to join the four existing market makers in the middle of next month. These market makers, known as registered traders, quote prices on all options and ensure market liquidity. However, Credit Lyonnais' plans to start market making by the middle of this year have been delayed. One British-based dealer said the 2,021 contracts traded on Thursday, the second busiest day since the market was opened in March, were swelled by arbitrage activities by Morgan Stanley. He said the US investment house wanted to make a major arbitrage play when the Hang Seng Index was standing substantially above the September futures, and turned to the options market because the futures market could not offer a single price for dozensof contracts. Chan Han-siong, manager for derivatives at HG Asia, said the 10-point spreads allowed for market makers made it more profitable than agency business, despite the increased risk. He said strong options markets in the Hang Seng Index and major stocks would prove a powerful draw for overseas investors, who were responsible for 70 per cent of options trade. ''They use it as insurance. It's not like futures where the risk is unlimited.'' The options market's sharp take-off contrasts with the slow start of Singapore's futures contract based on the Morgan Stanley Capital Index for Hong Kong, for which Friday's trade totalled 166 lots. When the local options market was launched, futures exchange chief executive Gary Knight warned that the take-off might be slow, but said that in other markets options trade could be two or three times that of the underlying securities. After a measured start, trade really started taking off on June 30, when it passed 1,000 contracts for the sixth time. Trade has passed this mark on most days since. Implied volatility, a measure of the amount of risk built into contract prices, has also moved consistently downwards from a high of 31 per cent in April to about 20 per cent, which will have encouraged some investors. Dealers said uncertainty about the contents of Governor Chris Patten's policy speech, due on October 6, and the progress of Sino-British talks were driving institutions into the options market. Heaviest trade last week was in near-the-money contracts in September.
