Option Deals Vs Dollar Upside Risk Bought
26 Dec 2011 23:45 EST
By Takashi MochizukiTOKYO (Dow Jones via eFXnews)
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Some non-Japanese hedge funds purchased hedging deals against the dollar's upside risk against the yen on Tuesday in Asia as they increased their exposure to financial products of Japan.
Lately, these investors have stocked up holdings of Japanese bonds and equity, probably because they believe these assets are safe havens. While doing so, they also buy hedging contracts that guard them from currency risks.
"For example, one fund sold a dollar-put contract with a Y74.00 strike while buying a dollar-call contract with a Y82.50 strike. Each deal expires on March 22 and has a face value of $250 million," a senior dealer at a major bank in Tokyo said.
Looking ahead, he said volatilities will rise as more deals against the greenback's upside risks will be bought. That is because U.S. indicators are recently beating market expectations, he added.
The volatilities used are over-the-counter, at-the-money rates.
1-month 25 delta risk-reversals favor dollar put/yen call options by -0.98%/0.23% compared with -0.98%/0.23% in Tokyo Monday.