While the HKD market has been choppy......>

HONG KONG: While the HKD market has been choppy given sporadic Chinese/Hong Kong

market holidays, demand for HKD downside protection via options has picked up.

Since the beginning of September, close to $2 in USD/HKD calls have traded for

every $1 in puts, with call strikes at and above the 7.85 level drawing

particular demand. Close to $4.5bln in 7.85+ vanilla/NDO call strikes have

traded since the protests began. Whether the trades are positioning for a break

of the peg or are merely looking for a vol pick-up remains to be seen, however.

-Further unrest over the weekend and throughout China's National Day holidays

has clearly unnerved domestic investors, which led to a response from the

country's Finance Secretary this weekend who stated the government is committed

to keeping the country free of capital and/or FX controls. The domestic market's

caution has been well reflected in USD/HKD NDF outrights, which continue to

creep higher. The 1m contract today hit the highest since early September. 

-Monday's market holiday kept onshore equity markets closed, but these are seen

reopening with losses Tuesday. The cash Hang Seng Index finished with losses of

just over 1% on Friday.