China Tensions Spur $2 Billion of Bets on Currency Options
- Lots of concern about sanctions against China, CIBC’s Rai says
- USD/HKD one of most actively traded pairs in options market
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Foreign-exchange options traders anxious about worsening U.S.-China relations are using key currency proxies to hedge against the uncertainties.
Tuesday saw nearly $1.4 billion of options traded on the Hong Kong dollar and U.S. dollar that will be profitable if the Asian currency is below 7.61 per greenback in three months’ time, while another $640 million worth of similar derivatives was traded that are tied to the 7.64 level. They could also prove profitable for traders even without spot breaking below the official trading band of 7.75-7.85 if option-implied volatility were to rise sufficiently.