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* UK equity outflows accelerating -SocGen
* Traders cite demand for "put" options on FTSE 100
* Scotland independence vote on Sept. 18
By Sudip Kar-Gupta
LONDON, Sept 10 (Reuters) - As Scottish opinion polls runneck and neck, investors are scrambling to hedge their tradingbets on UK equities to protect against market mayhem if Scotlandvotes next week to break away from the United Kingdom.
The referendum scheduled for Sept. 18, which will decidewhether Scotland leaves the 307-year-old union, is too close tocall, according to one polling firm. That has rattled investorswho had dismissed any need to alter trading strategy while thepro-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 potentialvolatility ahead by using derivatives such as options, whichgive the holder the right to buy - via a "call" - or sell - viaa "put" - a security for a certain price by a future date.
Traders said activity in European options trading in generalhad been relatively subdued this year, in tandem with sluggishtrading volumes on Britain's benchmark FTSE 100 equityindex, which are flat with year-ago levels, according to datafrom Fidessa.
But activity had picked up since the start of Septemberafter the holiday season, they said, driven in part by worriesover Scotland and military conflict in Ukraine.
Arcanum Asset Management's Paul Gleeson said that althoughhe expected the "No" campaign against Scottish independence toprevail, he was nevertheless buying up options to protecthimself against a stock market pullback.
Gleeson has a "bear put spread" trade on Britain's benchmarkFTSE 100 index, buying up December 'put' options with astrike price of 6,000 points, while simultaneously sellingDecember 'puts' with a 5,800 strike price.
The trade reflects Gleeson's view that there is a risk ofthe FTSE falling at least 12 percent over the next three monthsto below 6,000 points - when the December 'put' he holds turnsprofitable - but not as far as 5,800 points.
Thomson Reuters' options watch data shows more demand for'put' options due to mature on Sept. 19 - when the result of theScottish vote will be known - than for 'call' options.
Open interest currently stands at 17,221 contracts out for a'put' option due to expire on that day with a strike price of6,600 points - some 3 percent below the FTSE's current levels -whereas open interest stands at 12,764 contracts for a 'call'option betting on the FTSE hitting 6,900 points by then.
Mike Turner, European equity options broker at XBZ Limited,also said there was more demand for "puts" betting on a marketfall rather than bullish "call" options as the vote approached.
"There is definitely more 'put' activity," he said.
BETTER OUT
Societe Generale analysts said in a note on Tuesday that netoutflows from UK equity funds had been accelerating, amid fearsthat a Scottish vote in favour of independence could also raisethe chance of Britain leaving the European Union.
Stripping out Scottish MPs from the Westminster parliamentcould tip the balance towards the Conservatives, who havepromised a referendum on EU membership.
"The UK is increasingly a case apart, with net in-flows intoUK mutual funds and ETFs (exchange traded funds) falling farbehind its European neighbours," said Alain Bokobza, head ofSocGen's global asset allocation team.
SocGen cited data from its own research and from EPFR Globalthat tracked the flows of funds up to the end of July.
The pattern was also backed up by data from ETFGI, aresearch and consultancy firm covering the ETF and ETP (exchangetraded products) industry.
While all European flows have been hit by concerns overfighting in Ukraine with pro-Moscow separatists, according toETFGI, some traders said uncertainty ahead of the Scotlandindependence vote was having an additional negative impact onthe FTSE, with sterling also having fallen to 10-monthlows against the dollar as the Scottish vote looms.
The FTSE underperformed rival European markets on Monday asa drop in the shares of companies with strong business ties toScotland - including major banks such as Royal Bank of Scotland and Lloyds - dragged down the broader market.
Nomura strategists backed "shorting" UK banks - betting onthem falling - while going "long" with bets that rival Europeanbanks would rise. (Reporting by Sudip Kar-Gupta; Editing by Lionel Laurent andWill Waterman)
