Japanese corporations are selling out-of-the-money equity calls "with a vengeance" to beef up their cash flows ahead of the coming fiscal year end, according to equity derivative traders in Tokyo. Traders said corporates typically are selling one-month maturity options and rolling over the positions each month. Several hundred million dollars (notional) of trades have been executed in the last month, another trader in Tokyo added. They declined to name corporates that have been shorting calls.
"Japan Inc. needs to sell calls because the real business isn't making much money," said a trader. For most firms, the fiscal year ends in late March. "There's pressure to make the books look good," another trader noted, adding that earning premium on short call positions is one way of doing this.
Hideaki Takeshige, an official at Bank of Yokohama, said companies are increasingly turning to the over-the-counter derivatives market because of thin liquidity in the exchange-traded market.
