Last Wednesday, the Hang Seng dived 1,339.24 points, or 5.4 per cent, to 23,469.46 during a half- day session - its steepest plunge in two weeks.

That came after a contraction in the United States services sector, which fuelled concerns that a recession in America is inevitable.

The US Institute for Supply Management's non-manufacturing index fell to 41.9 last month from 54.4 the prior month.

The Hong Kong bourse was closed for the rest of the week for the Chinese New Year holiday.

Mr Ooi Lid Seng, Societe Generale's (SG's) vice-president of structured products for Asia, excluding Japan, said: 'The Hang Seng continues to be very volatile, moving on average 1,000 points intra-day. With such volatility, it can be opportunistic for both bullish and bearish investors.'

Hang Seng contracts were the most active warrants in Singapore last year, accounting for $7.89 billion, or 28 per cent, of total turnover.

Mr Ooi highlighted two Hang Seng contracts offered by the French bank. Those with a positive view of the Hang Seng can consider an SG call warrant expiring on March 28 that pays out if the index tops 24,200. Last Friday, that contract plunged 14.5 cents to 38.5 cents with 520,000 units done.

Those bearish about the Hang Seng can look at an SG put warrant, also lapsing on March 28, that pays out if the index drops below 23,200. That warrant closed up a cent last Friday at 46.5 cents, with 817,000 units traded.

Mr Ooi feels that the outlook for the Hang Seng is negative.

He said: 'It has broken short- term support of 23,900, and looks to test 23,000. If this support also falters, the next support level will be around 21,500.'

A call warrant lets an investor buy into a stock or index at a pre- set price over a period of three to nine months. A put warrant allows an investor to sell the stock or index at a pre-set price.

alfoo@sph.com.sg