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HKD Option Volumes Surge as Spot Buoyed by HIBOR Squeeze

HONG KONG
  • Despite the quieter start to the week for FX options, HKD hedging is busier, amid local demand for HKD and a run higher in front end HKD implied vols. 1m USD/HKD implied has traded just above 1.3 points today - the highest since August - as USD/HKD is pressured to the lowest level since late last year.
  • Cash demand (partly seasonal, partly due to the still-low HKMA aggregate balance) remains the key issue here, evident in today's 1m HIBOR, which fixed at the highest level in decades to tighten liquidity further and provide a tailwind for the HKD via wider front-end US-HK rate differentials.
  • Despite the pullback in spot, USD/HKD options buyers have favoured calls, with over $4 trading in calls for every $1 in puts so far Monday. While much of the interest was in longer-dated 7.85 call strikes (options would be in the money on a break of the 7.75-7.85), the position would also gain on an uptick in implied vol toward levels seen at the tail-end of 2022.
  • Tighter liquidity conditions also reflected in HKD forwards, with the 12m points discount retreating to ~270 points from ~500 points at the beginning of this month.
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
EM BulletHomepagemarkets-real-timeEmerging Market NewsBulletMarketsFixed Income BulletsForeign Exchange Bullets
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
EM BulletHomepagemarkets-real-timeEmerging Market NewsBulletMarketsFixed Income BulletsForeign Exchange Bullets

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