Options best bet: Barclays

08:41, October 30, 2009      

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Investors should buy options on Chinese stocks while selling contracts on emerging-market shares because equity derivatives on the world's third-largest economy are cheap by comparison, Barclays Plc said.

Maneesh Deshpande, who leads the top-ranked derivatives strategy team in Institutional Investor magazine's 2009 survey, recommended buying options on the iShares FTSE/Xinhua China 25 Index Fund, a US exchange-traded fund tracking Chinese companies traded in Hong Kong, while selling options on the iShares MSCI Emerging Markets Index.

The New York-based derivatives strategist advised buying January $44 straddles on the iShares FTSE/Xinhua China index and selling January $41 straddles on the iShares MSCI Emerging Markets Index.

A straddle trade, which involves buying a call and a put on the same security with the same strike price and expiration, profits when swings in the price of an underlying stock or index increase. Calls give the right to buy a security for a certain amount, the strike price, by a given date. Puts convey the right to sell.

Deshpande said investors could profit from volatility, the key gauge of options prices, in the iShares FTSE/Xinhua China 25 Index in both rising and falling markets. With China leading global growth, future gross domestic product and inflation data from the world's most populous nation can be a source of volatility, he said.

Developing-nation stocks fell as concern mounted that central banks may rein in stimulus spending and slow a global economic recovery.

The MSCI Emerging Markets Index dropped 3.2 percent to 916.64. The 22-nation index has rallied 61 percent this year.

Source:China Daily
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