3 weeks ago
Traders Pile Into Taiwan Dollar Options Betting on Rebound
Imagine you have a special kind of ticket called an option that lets you bet on whether a country's money will get stronger or weaker.
Lately, lots of grown-up money traders are buying tickets that pay off if the Taiwan dollar gets stronger.
The Taiwan dollar had a tough July — its worst month since 2015.
Now, traders think it might bounce back.
In July they bought almost $8 billion worth of these tickets, more than tickets betting the money would fall.
That is the first time this year that has happened.
It helps that Japan and South Korea are making their own money stronger and that the US Federal Reserve paused its interest rate moves.
Christopher Wong, a money expert at Oversea-Chinese Banking Corp, says companies might start buying or selling Taiwan dollars more as expectations shift.
If the traders are right, the Taiwan dollar could become stronger in the coming weeks.
Traders boosted bullish options bets on the Taiwan dollar after the currency suffered its worst July since 2015.
Monthly notional volume of dollar-Taiwan dollar put options reached nearly $8 billion, outstripping call options for the first time this year.
The Taiwan dollar gained 0.2% in early August to around 32.231 per US dollar, following a 1.43% decline in July.
Official interventions supporting the Japanese yen and South Korean won, plus the Federal Reserve's rate pause, are seen as tailwinds for the currency.
Citigroup's Patrick Green says client demand is predominantly for downside options, with some contracts targeting 31.5 per dollar within a month.
- Who
- Currency traders, including Citigroup Inc. clients, are betting on a Taiwan dollar rebound.
- What
- A surge in bullish Taiwan dollar options, with monthly put volume reaching nearly $8 billion and exceeding call options for the first time this year.
- Where
- Global foreign-exchange markets, tracked via Depository Trust & Clearing Corporation data compiled by Bloomberg.
- When
- Late July through early August, after the Taiwan dollar posted its worst July since 2015.
- Why
- Expectations of a Taiwan dollar recovery, supported by official interventions for the Japanese yen and South Korean won and the Federal Reserve's rate pause.
Key facts
- Currency
- Taiwan dollar at about 32.231 per US dollar
- July performance
- Fell 1.43%, its worst July since 2015
- August gain
- 0.2% so far this month
- Put option volume
- Nearly $8 billion in July, exceeding call options for the first time this year
- Option target
- Contracts targeting 31.5 per dollar within a month
- Risk reversals
- Front-end dollar-Taiwan dollar risk reversals turned negative, lowest since May
- NDF swap points
- Fell into discount across most tenors at the end of July
- Tailwinds
- Interventions supporting the yen and won; Federal Reserve rate pause
Quotes
Christopher Wong
Strategist at Oversea‑Chinese Banking Corp
“As expectations for the dollar become less one-sided, some firms may be more inclined to increase conversion or hedging activity,”
livemint.com
“Client interest has picked up since late last week and is predominantly for downside,”
livemint.com
Sources
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