Like a punch drunk boxer longing for the final bell, HSBC’s long suffering shareholders now seek light at the end of what has been a very long tunnel. Many blows have been conceded by the banking behemoth over the past few years to the point where a full UK exit strategy is now being considered. This recent news flow proved a short term fillip for the shares through April but they have since resumed their slide against the sector. As HSBC further considers it’s options, today’s OTAS Lingo report on the FTSE 100 notes equity options were in unusually high demand for the Company yesterday. Does the derivative market hold the key to the next move in the shares ?
Exploring the OTAS Implied Volatility view in more detail highlights some interesting observations in the options market.
Given its sheer size and weighting within its respective industry, HSBC’s implied volatility has typically been half that of sector peers over the last 2 years. This relationship has seen a considerable move higher in the last month as the option market prices in a greater degree of share price movement. Current Implied Volatility of 18.4 indicates a +/- 9% trading range over the next 3 months.
As noted in the Lingo report above, compared to usual*, traded volume in options yesterday was significantly higher than normal. The Top 10 Traded Volume table indicates there was a heavier bias in Calls.
Additional factors observed may also indicate a supportive environment for HSBC shares currently.
Downside skew (effectively a measure of cost of downside protection) has shown a gradual contraction in the last 2 months and now sits close to its 1 year lows suggesting little directional appetite or position protection demand.
This is further evidenced in the Put Ratio which is back towards the lows seen in April.
Are Equity investors getting a steer from the derivative markets or is it simply investor complacency ?
Make sure you have the tools to make that decision….here
*we compare the daily traded volume to standard distribution over 1 year