IMPLIED volatility dropped five percentage points to 27 per cent in the front month as selling affected the Hang Seng index options and attention switched from December to January. Turnover in index options yesterday was 3,942 lots on a day of trading that saw options investors in a bearish mood compared with the relative optimism in index futures trading. Jardine Fleming said: 'The options market saw strong selling in December out-of-the-money calls at the 8,400 and 8,800 strike, indicating a general bearish sentiment.' At-the-money implied volatility in June stood at 28.5 per cent. Futures contract turnover was 21,525. December futures rose 335 points to 8,255 to close at almost par with the cash market as the discount narrowed from 77 points on Wednesday to four points yesterday. Contract turnover was 21,446. January futures rose 340 points to 8,280 on 728 contracts. Roll-over activity is expected to begin in earnest tomorrow, although the overa ll open interest is expected to shrink in the Christmas and New Year holiday break. Dealers said the current rally in the cash market was technical and no one believed it. Short covering might add more fuel to the surge, but it was only temporary in the absence of a major change in sentiment on Wall Street.