Hong Kong Put-Option Trades Jump as Hang Seng Rallies

Updated on

Trading of bearish options on Hong Kong stocks jumped to 14 times the four-week average in U.S. trading yesterday as investors boosted buying of contracts that protect against a decline.

More than 10,000 puts to sell the iShares MSCI Hong Kong Index Fund changed hands yesterday, 206 times the number of calls to buy, as the ETF climbed 0.4 percent to $17.99 in New York. Almost all of that volume was concentrated in two trades of March $16 puts and March $17 puts. The ETF hasn’t closed below $16 since Aug. 31. Since then, it has rallied 13 percent.

“There was substantial put-buying, indicating a bet on a lower index, increased market volatility and a general change in direction from the last month to month and a half,” said Ophir Gottlieb, head of client services at Livevol Inc., a San Francisco-based provider of options market analytics.

Hong Kong’s Hang Seng Index increased 1.2 percent to a nine-month high yesterday, leading gains in Asian benchmarks, after Chinese manufacturing rose for a second month, adding to signs that the world’s fastest-growing major economy is stabilizing. The gauge fell 0.1 percent today. The Hong Kong ETF rose 0.8 percent to $18.14 as of 4 p.m. in New York.

All but two of 40 stocks tracked by the ETF have risen this month, led by gains of more than 20 percent for Hong Kong Exchanges & Clearing Ltd., Hutchison Whampoa Ltd. and New World Development Co. The Hang Seng has rallied 18 percent since falling to a six-month low in May, outpacing a 13 percent rally for the MSCI World Index during the same period.

“Someone is likely hedging the gains they’ve had,” said Jason Roelke, head of derivative sales at Jefferies Group Inc. in New York. The investor is “buying puts on one of the more recent better-performing assets.”

The total combined open interest for the ETF’s March puts was 197 before yesterday, and more than 99 percent of the March $16 puts and March $17 puts changed hands on the ask price, indicating that almost all of yesterday’s trades were initiated by buyers creating new bearish positions.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE