Taiwan Elections 臺灣大選 and EWT

There is a big Taiwanese election coming up in November and I have had my eye on it for sometime.    While I’ve been long Taiwan for some time (and added a lot a few months ago during the spring/summer dip), I am thinking now might be a good opportunity to write some calls and protect these gains.  The KMT most likely thought that this summers free trade agreement with China would have produced some good will with voters (to help abut Mr. Ma’s battered public image from last years Typhoon response, lack luster wage growth, and recent flower show scandal)  but judging from the most recent polls… it ain’t happening.

I know the below chart is hard to read, but the KMT (blue) & DPP (green) candidates are basically split (with a good 36% undecided) for the Taipei mayor race.  While this is clearly no runaway, keep in mind Taipei is about as deep blue a city as there is (think Salt Lake City for Republicans or San Fran for Democrats in the US) and if things are this close in Taipei, I’d be willing to bet a big green wave is on the way.

Again, sorry for the bad image… Blue is KMT, Green is DPP.  The polls below are also being conducted by different organizations so that might explain some of the movement.

So what to do?

Normally I would just short the stock but since I own tons of EWT already and think the election will just be a 2-3 month speed bump, I was thinking of selling some calls.  The only problem is that VOLS aren’t as high as I would have liked.   Since I don’t have bloomberg anymore, I use a neat little excel program to calculate the implied volatility and as you can see below, they are in the 20’s.  I guess this isn’t terrible, but, higher would be better.

The recent run up in the TWSE (and thus EWT) is partly monthly revenue results orientated and there also plenty of Government buying rumors too boot.

Sources:

http://tw.nextmedia.com/applenews/article/art_id/32881159/IssueID/20101013

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