Friday, September 17, 2010

Hong Kong Index (EWH) - A Bet on Calm Broader Markets

EWH (MSCI Hong Kong Index) closed at $17.21 yesterday, basically unched for the day. The LIVEVOL™ Pro Summary is below.

The ETF traded over 11,300 options on total daily average option volume of just 2,771. All but 73 contracts were puts. The largest trade was a sale of 11,000 Oct 17 puts @ $0.225. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that the puts are opening (compare OI to trade size). You can also see that Oct vol is just 17, relative to Dec (20) and Jan'11 (21). This back month pattern where vols increase moving out is similar to what I posted yesterday: IVZ - Playing Vol Backwardation and Long Vega.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

Note a few interesting things:
1) IV30™ (17.4) is above well HV20™ (11.3).
2) HV180™ (19) is above both IV30™ and HV20™.

So the long term realized vol is above the implied and well above the near term realized vol. The sale yesterday is a bet that the realized vol stays low (below the 17 vol sale). This is a pretty big bet in a broad market indicator. Basically, it's a bet that China (Hong Kong) is not going to see any big vol events in the often times vol driven month of October.

This is trade analysis, not a recommendation.

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