RenCap Recommends RTS Call Options, Says Russian Index to Gain

By William Mauldin

Aug. 6 (Bloomberg) -- Investors should buy call options on Russia's RTS Index to benefit from a possible ``bounce'' in the equity benchmark, which may increase as much as almost 20 percent within two months, Renaissance Capital said.

The brokerage recommended buying calls expiring in a month with a strike price 5 percent more than the RTS's current level. The gauge traded at 1,809.47 as of 2:41 p.m. in Moscow. Investors will make money, after the costs of buying the contract, if the RTS rises to above 1,965 in the next month, Renaissance Capital strategist David Aserkoff wrote in a note to investors today.

Renaissance expects the RTS Index to trade between 1,800 and 2,150 in the remainder of the third quarter, as much as 19 percent above yesterday's closing price. Yesterday, the Russian benchmark had its worst daily performance compared with Europe's Dow Jones Stoxx 600 Index and the Standard & Poor's 500 Index in more than two years, RenCap said.

``It seems like we could bounce a little here,'' Aserkoff wrote. The RTS dropped 4.4 percent to 1,812 yesterday, led by oil producer OAO Rosneft after declines in crude prices.

Calls give investors the right to buy a security for a certain amount, the strike price, up to a given date. Puts convey the right to sell a security under similar conditions. Investors use options to guard against fluctuations in the price of securities or indexes they already own and also to make leveraged bets or wager that volatility, or stock-price swings, will increase or decrease.

To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.