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Free AccessNo surprise to see a highly active........>
HONG KONG: No surprise to see a highly active USD/HKD options market this
morning, with HKD hedging activity running well ahead of average for this time
of day. Mirroring the stresses seen in HKD forward markets (1y, 2y forward
points have spiked to multi-decade highs, highest levels since 1999), HKD
implied vols have surged, with the 1y measure now rivalling the late 2019 highs.
- USD/HKD calls have been favoured, with 7.80 strikes in firm demand.
Interestingly, however, are the trades lodged to profit on a move above 7.85 in
spot (the upper end of the HKMA's trading band). According to DTCC data, close
to $800mln of call options have crossed this morning with strikes at 7.85 or
above either as a standalone trade or one leg of a 7.75/7.85 strangle.
- While these trades may appear best placed to profit on the HKMA's USD/HKD
trading band being broken to the upside, it may also be the case that the buyer
is looking for an uptick in implied vol on the position rather than a true
breakout in the spot rate. Most positions crossing have a decent shelf life,
with the larger trades eyeing late November 2020 expiries, although some look to
roll-off mid-2021 also.
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.