Jardine Fleming said: ''The news of [Japanese Prime Minister Morihiro] Hosokawa's resignation near the morning close caused investors to close out their positions.'' Initial nerves hurt futures, with the premium falling from a consistent 100-point level to 20 points at the close of morning trading.

In the afternoon the market shrugged off the resignation fears and went back to its previously bland composure.

The cash stopped at 9,298, up 12 points on the close of trading. The April futures was up 40 points on its close, some 15 minutes later, at 9,340, a premium of 42 points.

May futures closed up 50 points at 9,350.

Volume was an anaemic 7,130 of which 7,120 was in April and eight contracts in May.

Open interest in April was 31,793 and in May, 44.

Jardine Fleming said: ''Massive premium selling in April out-of-the-money calls and puts forced the implied volatilities down further to an average of 40.5 per cent.'' The brokerage said investors who are expecting a consolidation in the near future also sold June 9,400 and 9,800 strangles.

A strangle occurs where an investor buys or sells an out-of-the-money call and an out-of-the-money put.

Implied volatilities for at-the-money calls and puts in April were 40 per cent and 41 per cent respectively.

In May implied volatilities were both 43 per cent, in June they were 40 per cent and 41 per cent respectively and in September they were 39 per cent and 40 per cent respectively.

This configuration of volatility is the flattest observed in more than six months.

The front month implied volatility is at its closest point to the Hang Seng index 100-day historic volatility since March 9 when it crossed the Hang Seng index measure before rebounding to above 50 per cent on March 23.

The Hang Seng index 100-day volatility was falling and stood at around 38 per cent.

Total option volume was 1,855, some 26 per cent of the futures market. The option open interest was 24,934.

Investors are taking the view that the market is due for a period of consolidation.

The selling of premium has deflated implied volatility, making options cheaper in straight price terms, although less likely to make heaps of money.

But in a stable market environment stocks will not be making any money in capital appreciation terms either, which is why any money that can be made from the premium gained on sales will be well appreciated.

Figures from Jardine Fleming indicate there are seasonal cycles in implied volatility, and the summer is traditionally a period when it drops to relatively low levels.

There are risks attached to such strategies, however.

From September 1993 until now investors have been severely punished for selling volatility.

Any major shift in market sentiment abroad, which has been leading Hong Kong stock sentiment since mid-January, could have a dramatic effect, pushing volatilities back up again.