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SCMP Reporter

THE covered warrant issued on HSBC by Barclays de Zoete Wedd involved about $3 billion of underlying equity and premium income of $700 million.

  The brokerage believes the issue, involving 250 million two-year call warrants with a conversion ratio of 10 to one, to be the biggest of its kind.

  The strike price was set at $120, placing it at par with the market close of the share.

  At $2.98, the issue was on a premium of 245.8 per cent and a gearing of 4.03 times.

  The implied volatility of the issue was estimated to be in line with market averages of more than 40 per cent.

  Brokers said yesterday's dealings in Hang Seng Index futures had been, as Morgan Stanley's Barton Biggs might have put it, ''maximum bullish''.

  February futures opened 100 points up and traded in a narrow range between 11,720 and 11,850 in the morning.

  A buying frenzy in the afternoon took the February contract up 300 points, in the face of selling from arbitrageurs.

  Jardine Fleming said: ''The buying frenzy was even more pronounced after the stock market closed as overseas institutions scrambled in to increase exposure.''   The February contract finally punched through 12,000 at around 3.30 pm, the close of cash market trading.

  It closed at 12,140, up 520 points on the day and at a premium to the cash market of 314 points, one of the largest gaps since the liquidity-led bull run of December.

  February's open interest was 26,671. There was a volume of 13,824 contracts.

   March closed at 12,150, with a stable open interest of 781 contracts.

  In index options, institutions focused on deep in-the-money June calls.

  JF said: ''Despite the market activity, the February volatility was one of the few things going down and was actively crushed to around 40 per cent as call holders took profits.''   The closing implied volatilities for call and put options for February were 38.5 per cent and 37 per cent, respectively. For March they were 38 per cent and 40.5 per cent, and for June and September they were around 34 per cent.

   Meanwhile, the Hang Seng Index 100-day volatility average continued its upward gradient, to around 33 per cent.

  In the absence of bad news, sentiment is expected to remain bullish throughout the week.

  The rise in futures activity may signal a new wave of overseas investors coming in and using the derivatives as a parking spot while seeking out value stocks or opportunistic buys during February.

  According to some brokers, the level of activity in covered warrants and over-the-counter derivatives business indicated the level of interest in local stocks from overseas institutions.

  ''There is a shortage of stock in the blue chips so we can see some support in sustained demand ahead,'' said a broker. However, a major surge like that of December is not expected.



HSBC warrant said to set record