Gus Dhothar from Goldman Sachs Investment Management and William Stephens from Deutsche Bank shared the stage for one for one of the final presentations of the day. This was a true co-presentation as both Dhothar and Stephens went back and forth discussing each slide. They covered five different topics – index strategies, single stock option trading, leveraging structured product flow, directional implementation, and finally how to trade China.
With respect to index strategies the noted a trader may often find a less expensive way of expressing their market opinion relative to what may appear to be the apparent best trade. An example of a popular trade in Asia was a call overwrite and the performance of doing so with Nikkei 225 options was demonstrated. It was noted that overwriting seems to work better when implemented systematically than using discretion.
In the single stock option space it was noted that in Hong Kong the liquidity is supplied by private bank placements and there is a very active warrant market. In Australia there is an active listed stock option market and there is active overwriting occurring in that market. In Japan there is not a listed stock option market which makes pricing volatility a little more difficult relative to other markets.
When discussing structured products in Asia, it was noted that it’s tough to take the other side of flow associated with structured products. This theme has been repeated a few times over the last couple of days at this conference.
When translating a view into a trade typical factors come into play such as maturity and strike relative to an outlook along with the potential rolling strategies that may be part of a long term plan. The actual sizing of trades needs to be considered with respect to portfolio diversification.
Finally, when discussing China, the duo pointed out that China is very unique with both A and B shares available and different markets with their own unique characteristics. The on shore option market is in the infancy stage so the most common way to gain exposure is through off short options, futures or ETFs. A wide variety of broad based indexes that measure stock performance in China was displayed and the dispersion of performance was incredible. If trading index derivatives with exposure to China a trader needs to spend time gaining an understanding of the specific index they are considering.