VCA also allows for implied index correlations that help investors determine the best time to execute a correlation trade on a given index, as well as which index components 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 stance is becoming relatively neutral compared to last year and appears less bearish compared to other major market indices.

Given this, options traders can formulate a strategy that would pay off if the HSI traded outside a certain range.

Structure an option strategy, run OVME to evaluate the price equity derivative products and strategies and develop an option strategy for HSI and others. To analyze the stock markets use the one from Bloomberg BI ATPR, EEG, VCA and OVME functions to analyze stock markets.

In this example, investors can run the HSI index again, use OVME to value OTC derivative contracts for equity underlyings.

The example above is structured to take advantage of a 10% or more gain in the Hang Seng Index, with its gain being stable when the indicator trades less than 10% in either direction . This so-called collar option costs the trader HK$71.98 per share (or an option premium of 0.395% of the notional) with a delta of 35.

To see the gains from this options trade, 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 around the 16,400 level for the HSI, and it begins to generate profits if the index rises above 20,045 or above by December 30.

Want to know more? Check Bloomberg Derivatives Trading Solutions And pre-negotiation solutions.

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