The Scottish Play – Equity Investors Hedge Against UK Split

LONDON (Reuters) – As Scottish opinion polls run neck and neck, investors are scrambling to hedge their trading bets on UK equities to protect against market mayhem if Scotland votes next week to break away from the United Kingdom.

The referendum scheduled for Sept. 18, which will decide whether Scotland leaves the 307-year-old union, is too close to call, according to one polling firm. That has rattled investors who had dismissed any need to alter trading strategy while the pro-union camp sat on a comfortable lead for months.

Some investors are opting to sell rather than take any risk – outflows from UK equity funds have recently accelerated, according to fund-tracking data from Societe Generale and ETFGI.

But others see an opportunity to profit from the potential volatility ahead by using derivatives such as options, which give the holder the right to buy – via a “call” – or sell – via a “put” – a security for a certain price by a future date.

Traders said activity in European options trading in general had been relatively subdued this year, in tandem with sluggish trading volumes on Britain’s benchmark FTSE 100 equity index, which are flat with year-ago levels, according to data from Fidessa.

But activity had picked up since the start of September after the holiday season, they said, driven in part by worries over Scotland and military conflict in Ukraine.

Arcanum Asset Management’s Paul Gleeson said that although he expected the “No” campaign against Scottish independence to prevail, he was nevertheless buying up options to protect himself against a stock market pullback.

Read more at Reuters