HomeBusiness DigestOption demand skyrockets as investors stir

Option demand skyrockets as investors stir

Shakeman Mugari

CAPACITY in options this week hit the roof as investors snapped up derivatives which analysts say has significantly fed the bulls on the Zimbabwe Stock Exchange (ZSE) for

the last month, pushing the index to new heights.

Derivative dealers said most broking firms had exhausted capacity to take further orders from investors eager to deal in options.

“Demand for options has hit the roof. Most broking firms have al-ready exhausted theircapacity,” said a deri-vative dealer at Bar-bican Asset Management.

“The demand has seen increases during the last month and this could have contributed significantly to the bull run on the market.”

He said most companies opened their derivative desk on June 20 and within a week fund managers had snapped up the options.

Companies are likely to resume trading next week as most option contracts begin to expire.

The market which has been rallying during the last month this week showed signs of plummeting due to the sudden flow of shares coming from investors exercising their options.

Investors have begun exercising their options before maturity.

The market slackened to 3 283,88 on Monday bringing to a halt the sharp rise.

Speculation had fuel-led a market rally last month owing to interest generated by the derivatives contract holders.

Financial counters most of which are releasing interims this month have been targeted by option traders pushing day stocks such as Century Holdings Ltd and First Banking Corporation of Zimbabwe Ltd to gains.

Other financial counters such as NMB Holdings Ltd, Trust Holdings Ltd, Kingdom Financial Holdings Ltd, and ABC Holdings Ltd saw their shares leap during the last two weeks riding on the back of rife speculation created by the option on the market.

Econet Wireless Holdings Ltd with a pending interim also gained on the back of the speculation.

“The rise on the market will be depressed for the next days as option holders begin off-loading their shares on the market thus increasing the supply and pushing down the prices or forcing them to remain constant,” said an expert in options.

Meanwhile the Derivatives Association of Zimbabwe held an update meeting last week.

The association is chaired by Barbican chief executive officer Mthuli Ncube.

The association discussed the possibility of formulating a pricing mechanism and other contractual issues.

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