Over-the-counter options referenced to dollar-denominated American depository receipts on Asian equities have gained momentum in recent weeks. "As the focus on pair trading has increased, people are looking at other forms of arb," said Sajeev Sirpal, managing director and head of Asia at KBC Financial Products in Hong Kong. The move is prompted by firms increasing their proprietary trading activities in the light of falling customer flows and directionless markets.
In a typical trade firms sell ADR options puts or calls and buy options on the shares for a leveraged play on the names. They look to profit on the difference in volatility or foreign exchange rates, explained a trader.
One trader estimated about USD5 million traded in Hong Kong on OTC ADR options in Taiwan's TSMC last week, a name that has been quiet for several weeks. Traders at JPMorgan also confirmed the increase, noting interest on names throughout the region, declining further comment.
