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The Scottish play - equity investors hedge against UK split
2014年9月10日 / 下午2点23分 / 3 年前

The Scottish play - equity investors hedge against UK split

* UK equity outflows accelerating -SocGen

* Traders cite demand for “put” options on FTSE 100

* Scotland independence vote on Sept. 18

By Sudip Kar-Gupta

LONDON, Sept 10 (Reuters) - As Scottish opinion polls run neck and neck, investors are scrambling to hedge their trading bets on UK equities to protect against market mayhem if Scotland votes next week to break away from the United Kingdom.

The referendum scheduled for Sept. 18, which will decide whether Scotland leaves the 307-year-old union, is too close to call, according to one polling firm. That has rattled investors who had dismissed any need to alter trading strategy while the pro-union camp sat on a comfortable lead for months.

Some investors are opting to sell rather than take any risk - outflows from UK equity funds have recently accelerated, according to fund-tracking data from Societe Generale and ETFGI.

But others see an opportunity to profit from the potential volatility ahead by using derivatives such as options, which give the holder the right to buy - via a “call” - or sell - via a “put” - a security for a certain price by a future date.

Traders said activity in European options trading in general had been relatively subdued this year, in tandem with sluggish trading volumes on Britain’s benchmark FTSE 100 equity index, which are flat with year-ago levels, according to data from Fidessa.

But activity had picked up since the start of September after the holiday season, they said, driven in part by worries over Scotland and military conflict in Ukraine.

Arcanum Asset Management’s Paul Gleeson said that although he expected the “No” campaign against Scottish independence to prevail, he was nevertheless buying up options to protect himself against a stock market pullback.

Gleeson has a “bear put spread” trade on Britain’s benchmark FTSE 100 index, buying up December ‘put’ options with a strike price of 6,000 points, while simultaneously selling December ‘puts’ with a 5,800 strike price.

The trade reflects Gleeson’s view that there is a risk of the FTSE falling at least 12 percent over the next three months to below 6,000 points - when the December ‘put’ he holds turns profitable - but not as far as 5,800 points.

Thomson Reuters’ options watch data shows more demand for ‘put’ options due to mature on Sept. 19 - when the result of the Scottish vote will be known - than for ‘call’ options.

Open interest currently stands at 17,221 contracts out for a ‘put’ option due to expire on that day with a strike price of 6,600 points - some 3 percent below the FTSE’s current levels - whereas open interest stands at 12,764 contracts for a ‘call’ option betting on the FTSE hitting 6,900 points by then.

Mike Turner, European equity options broker at XBZ Limited, also said there was more demand for “puts” betting on a market fall rather than bullish “call” options as the vote approached.

“There is definitely more ‘put’ activity,” he said.


Societe Generale analysts said in a note on Tuesday that net outflows from UK equity funds had been accelerating, amid fears that a Scottish vote in favour of independence could also raise the chance of Britain leaving the European Union.

Stripping out Scottish MPs from the Westminster parliament could tip the balance towards the Conservatives, who have promised a referendum on EU membership.

“The UK is increasingly a case apart, with net in-flows into UK mutual funds and ETFs (exchange traded funds) falling far behind its European neighbours,” said Alain Bokobza, head of SocGen’s global asset allocation team.

SocGen cited data from its own research and from EPFR Global that tracked the flows of funds up to the end of July.

The pattern was also backed up by data from ETFGI, a research and consultancy firm covering the ETF and ETP (exchange traded products) industry.

While all European flows have been hit by concerns over fighting in Ukraine with pro-Moscow separatists, according to ETFGI, some traders said uncertainty ahead of the Scotland independence vote was having an additional negative impact on the FTSE, with sterling also having fallen to 10-month lows against the dollar as the Scottish vote looms.

The FTSE underperformed rival European markets on Monday as a drop in the shares of companies with strong business ties to Scotland - including major banks such as Royal Bank of Scotland and Lloyds - dragged down the broader market.

Nomura strategists backed “shorting” UK banks - betting on them falling - while going “long” with bets that rival European banks would rise. (Reporting by Sudip Kar-Gupta; Editing by Lionel Laurent and Will Waterman)

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