DERIVATIVES activity remained relatively quiet for the third day running as the January Hang Seng Index futures run out of time and volatility remains high in March and June. The strong overnight buying of Hong Kong stocks in London took the January futures to an 11,600 high for the day. After the initial surge, strong overseas institutional selling led by some of the US investment banks, including Morgan Stanley and Salomon Brothers, depressed the index. Despite some buying support the banks kept selling all day, market watchers reported. Rumours put out from Morgan Stanley indicated that money from two Japanese funds managed by Yamaichi and Daiwa would not be coming, as plans to invest through the funds had been postponed. This apparently depressed sentiment. At Jardine Fleming, Vivian Ting said: ''Much of the trading activity was concentrated in the January contract.'' January futures remained at a discount for most of the day, closing at 11,110, down 230 points and a discount of 154 points to the cash index. Heavy dumping of the contract continued after the cash market stopped trading. February futures fell 245 points to 11,150. Total market turnover was 17,710, up 1,589 on Wednesday. Open interest stood at 28,947, up 121 contracts. Traded options saw 1,392 lots going through, up almost 500 on Wednesday. JF said: ''Volatilities remained similar to Wednesday with out-of-the-money options retaining higher prices. ''Those investors who feel that the market is returning to a more defined trading range should use this opportunity to sell strangles, but should also be aware of the open ended risks involved.'' SBC Derivatives broker James Vinall says this is one for investors who believe the index will be trading inside a particular range over the next few weeks. There is the open-ended risk of losing money on the upside. An out-of-the-money option is one which has no intrinsic value. The Peregrine Derivatives guide to options says it is where, for example, ''The index is below the strike price for calls (the right to buy at a given level) and above for puts (the right tosell)''. Mr Vinall points out that there is a good opportunity for some investors interested in selling strangles, where an investor sells a put and a call in the belief the market is going to go nowhere. For example, the June 10,000 put was marked at 580 points and the 12,800 call was at 500 points. If an investor sells both of these he or she will be betting the index is not going to fall below 8,920 on the downside or go above 13,080 on the upside. So the seller will be making money over the period. The BZW 1995 index warrant with a strike of 9,990 finished the day at $26, down $2 on the opening price on $152.94 million of turnover as 7.23 million warrants changed hands. This compares with the indicative price on Wednesday of the issue at $25.50, a premium of 10.2 per cent and a gearing of 4.4 times. At the time of placing to institutions, the issue price was $15.48, putting it on a premium of 15.5 per cent, a gearing of six times and an implied volatility of 28.5 per cent.