Currency hedging contracts flying off the...>

OPTIONS: Currency hedging contracts flying off the shelves this morning, with

USD/CNY activity around triple recent averages for this time of day, with

broader Asia-Pac FX hedging not far behind. Implied vols are following suit,

with notable bumps higher in the USD/JPY and AUD/USD short-ends. Less

surprisingly, USD/CNH and USD/CNY vols are well bid, with 3m vols rallying to

levels not seen since mid-May.

-The significant drop in spot CNY has helped prompt further USD/CNY call buying,

but USD/CNY puts have also been trading in size, with some market players

clearly looking to pick the top and take profits on the rally. Interest in call

strikes at 7.10, 7.20 and as high as 7.40 has been very healthy, but this has

been nicely balanced with increased interest in puts at 6.92, 6.90 and down at

6.75.

-One of the more interesting trades crossing in late Asia/early Europe was

consistent with a $250mln 7.10/7.30 call spread rolling off on Dec 20th, a trade

that would break even on a move above 7.15. Options markets see a 31%

probability of such an outcome and the trade being profitable.