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MEXICAN PESO: ###POV: MARKETS POSITIONING FOR FURTHER EM-FX FALLOUT VIA MXN PUTS
-Despite current emerging market economic woes being localised in Turkey,
options traders are clearly concerned the contagion will spread further afield.
Trades positioned to profit should EMFX sell off have taken off today, with
demand for hedges in MXN, BRL, INR and ZAR surging.
-The effect is most apparent in USD/MXN - today's options volumes are already
three times higher than average for this time of day, resulting in further
gyrations in implied vol markets: USD/MXN 1m risk reversals today touched their
highest since Trump's election in 2016 and the USD/MXN SMILE curve is now skewed
even further in favour of out of the money calls. Today's USD/MXN put/call ratio
mirrors this, with just under 2 calls bought for every put.
-Call options traded today eye strikes expiring end-August as high as Mxn
19.6750 (almost exactly in line with the 50% retracement of the June-August
sell-off). Larger trades rolling off in mid-September are geared to profit on
any move above above Mxn 19.91 in spot, a near 4% rally from the current spot