Futures up amid rising turnover
HANG Seng cash and index futures advanced yesterday in rising turnover while implied volatility in index options slid further.
In trading that took some dealers by surprise the cash index rose 261 points to 9,738, its highest close since March 17 on rumoured buying from Japan.
April futures rose 330 points to 9,830 and May rose by a similar margin to 9,810, a premium over the cash of 92 points and 72 points respectively.
Jardine Fleming said much of the activity was linked to overseas buying.
Some dealers speculated Japanese money was coming into Hong Kong stocks because of all the uncertainty in Japan by the resignation of Prime Minister Morihiro Hosokawa.
The high of the day was 9,802 in the cash and 9,860 in the April future.
Turnover was 13,902, almost double that of the previous few trading days.
April futures made up 13,847 of the total and May accounted for 54 contracts.
The open interest was 30,754 in April.
There are 13 trading days to run in April.
Dealers are mixed on whether the current surge in cash and futures can be sustained.
If turnover today in both markets is of a similar level to yesterday's activity the 10,000 level will almost certainly be tested.
However, a breakthrough at this level is not seen as likely in the absence of major positive fresh news as many profit-takers are expected at and above the 10,000 mark.
The last time the cash index was at 10,000 was March 16.
The low of the year so far was 8,667 on March 19.
In index options trading JF said activity concentrated on April 9,600 calls, with sentiment being mixed as Hong Kong investors sold and overseas ones bought.
JF said: ''Implied volatilities traded higher during the day with June trading at 45 per cent but were marked lower on the close.'' The front month implied volatility slid to some 37 per cent.
This was well below the 100-day Hang Seng index historic volatility of 39 per cent.
At-the-money implied volatility in call and put options in April was 37 per cent and 39 per cent respectively.
This is the lowest level they have been at in more than six months and indicates major institutions and traders are expecting a heavy consolidation of the market at around current levels in the short to medium term.
In May at-the-money implied volatility in call and put options were both 40 per cent, in June they were both 41 per cent and in September they were 38 per cent and 39 per cent respectively.
Overall volume was down from more than 2,000 options on Monday to 1,786 yesterday, some 12.8 per cent of futures volume.
Open interest was also down to 26,580.
JF said: ''Investors looking for investment opportunities with limited exposure should look to spread trades to capture the support and resistance levels in the market.'' A buy spread occurs where an investors buys a call and sells a call at a higher strike (a bull spread) and buys a put and sells a put at a lower strike (a bear spread).