MNI Analysis: USD/CNY options markets are...>

OPTIONS: MNI Analysis: USD/CNY options markets are geared for further gains:

-USD/CNY hedging volumes have surged along with the spot rate, resulting in the

sum of notional USD/CNY hedges regularly topping EUR/USD and USD/JPY, the two

most traded currency pairs in options markets. Calls have outnumbered puts,

suggesting traders have endorsed the recent rise in spot and will continue to do

so, in spite of hedging costs rising to multi-month highs.

-The nearest comparable move in USD/CNY implied volatility markets was in

February but this pales in comparison to moves seen in recent years, showing

that while options traders are somewhat bearish on the CNY, there's plenty of

room for markets to tilt further against the CNY.

-The vast majority of USD/CNY calls due to expire before the end of July have

strikes sitting below the YTD high of 6.6427. Nonetheless, there remains a

significant interest in strikes rolling off at 6.92 and as high as 7.00. One

would expect new short-term options to begin to opt for higher strike prices

should spot continue to ebb higher - potentially populating the gap.

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