Single-stock and index-linked option volumes have rocketed in Japan over the last few weeks, as speculative accounts position for a stock market rise linked to upcoming elections. Officials said sentiment is getting more positive as the election, scheduled for Sept. 11, approaches. Most equity players have turned to the OTC options market to take profit from the expected upturn.
"It's mainly been hedge funds buying calls on single-stock names," said an equity derivatives head at a bulge bracket house. Another equity trading official noted the banking sector has been particularly hot, given the improving outlook for the economy, with interest in calls on names such as Mizuho Financial Group, Sumitomo Mitsui Financial Group and UFJ Holdings, leading the pack. "There are expectations that [Prime Minister Junichiro Koizumi]'s party will win in September," he added, explaining the Liberal Democratic Party will likely have a mandate to continue reforms in the country.
In recent weeks six-month implied volatility, which has been subdued this year, has shot up two vol points to 15.5%, as a result of the pick up in activity. Traders said option positions have been put on across the gamut, from one-month to one-year.
