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Equity Vol Spikes In Australia

Equity volatility in Australia has shot up in recent weeks to the highest level in years following heavy trading in the hot resources sector.

Equity volatility in Australia has shot up in recent weeks to the highest level in years following heavy trading in the hot resources sector. "This is clearly the biggest move in the last four years," said Greg Mackay, head of equity derivatives at Macquarie Bank in Sydney.

Traders said three-month implied volatility had jumped to 17% from around the 12% level where it has remained subdued in recent years, given the steady rise in Aussie stocks. The resource sector, including such stocks as BHP Billiton, has been one of the drivers of the economy in recent years, due to demand from China. Uncertainty over sustained growth in this area, however, has caused vols to spike, filtering into other sectors.

Equity officials said as a result of high volatility, over-the-counter activity has increased by more than 30% in the last few weeks--a major increase given that domestic investors typically trade on the well-developed listed derivatives market. "There's been a lot of interest for exotic equity options," said Mackay, noting that investors have been diving into short- and medium-term plays.

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