​Value In Trading Nikkei Convexity, Directional Investors Absent

Volatility portfolio managers are increasingly considering corridor variance swaps in the Nikkei 225 given the consistent high convexity in Japan’s equity index amid a backdrop of healthy Uridashi issuance and demand from exotic books to buy back that convexity. Although vol managers are looking to exploit a number of factors in Asia currently such as high convexity in the Nikkei and cross-index correlation in the region, directional investors have increasingly been absent from APAC markets in recent weeks, particularly in the Nikkei, where systematic sellers continue to put pressure on gamma in the index.