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MNI: FED'S POWELL STILL SEES POSSIBLE PATH TO SOFT LANDING

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Demand for OTM Calls Props USD/CNY Options Volumes

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  • Despite USD/JPY's third session of losses and range breakout, it's CNY options that are drawing focus in FX hedging market, with total notional traded over double what you'd expect to see at this time of day.
  • Activity is being driven by upside protection, with over $2 in USD/CNY calls trading for every $1 in puts. OTM call strikes have drawn the most interest, with 7.33 and 7.39 seeing close to $5bln in notional in trades consistent with sizeable call spreads targeting an expiry at year-end.
  • Demand for CNY options mirrors the run higher in front-end vols, with 1m contract reversing the entirety of the mid-October step lower in implied.
  • The more notable strikes rolling off this week include $1.7bln at 7.25 on Thursday as well as $2.3bln layered between 7.23-7.25 set to expire on Friday.
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  • Despite USD/JPY's third session of losses and range breakout, it's CNY options that are drawing focus in FX hedging market, with total notional traded over double what you'd expect to see at this time of day.
  • Activity is being driven by upside protection, with over $2 in USD/CNY calls trading for every $1 in puts. OTM call strikes have drawn the most interest, with 7.33 and 7.39 seeing close to $5bln in notional in trades consistent with sizeable call spreads targeting an expiry at year-end.
  • Demand for CNY options mirrors the run higher in front-end vols, with 1m contract reversing the entirety of the mid-October step lower in implied.
  • The more notable strikes rolling off this week include $1.7bln at 7.25 on Thursday as well as $2.3bln layered between 7.23-7.25 set to expire on Friday.