Autocalls Cheapen Long-Dated Nikkei Vols, Opportunities Eyed

Last week’s stock market decline put upward pressure on short-dated Nikkei volatility and downside pressure on the long end, according to a recent Bank of America strategy report. This “textbook” reaction to the Nikkei selloff, of short-dated vols higher and long-dated vols lower, highlights that being on top of autocall dynamics can help achieve optimal entry points into long volatility trades, said Lars Näckter, head of APAC derivatives research at BofA Securities in Hong Kong.