VCA also allows index-implied correlations that help investors to determine the best time to execute a correlation trade on a certain index, as well as what components of the index should be included in the dispersion basket.
In our example, the PCTL column, which reflects the position of the most recent value, displays 48%. This suggests that its standing is becoming relatively neutral compared to the past year and appears less bearish in contrast to other major market indices.
Given that, option traders can formulate strategy that would pay out if the HSI would trade out of a certain range.
Tracking
To structure an option strategy, run OVME to price equity derivative products and strategies and develop an option strategy for HSI and others. To analyze stock markets use Bloomberg’s BI ATPR, EEG, VCA and OVME functions to analyze stock markets.
In this example investors can run HSI Index again, using OVME to price over-the-counter derivative contracts for equity underlyings.
The above example is structured to profit from a 10% gain or more in the Hang Seng Index with its payoff being flat when the gauge trades less than 10% either way. This so-called collar option cost the trader HK$71.98 per share (or Option Premium of 0.395% of the notional) with a 35 delta.
To see this options trade payoff, go to Scenario to Check the Profit and Loss Outlook for This Strategy in the selected period (in this case 12/30/2024 only).
There is downside protection for this collar all the way around 16,400 level for the HSI, and it starts to profit if the index rises above 20,045 or more by Dec. 30.
Want to learn more? Check out Bloomberg derivatives trading solutions and pre-trade solutions.
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