Market makers were buying euro calls/dollar puts last week in an attempt to cover two euro/dollar options positions that traded last month, estimated at USD2-4 billion (notional). Deutsche Bank and Bank of America reportedly bought the options, and some traders said these positions were on behalf of customers. Traders at Deutsche Bank and BofA declined comment.
The euro calls/dollar puts mature today and are struck at USD0.9485. As a result of the surge in demand, implied volatility for options maturing today jumped to 21.5% last Wednesday. In comparison, one-week implied vol was 13.3%/13.5%. The contracts were out-of-the-money, so market makers were hedging using options.
RBS Financial Markets was also seen buying euro calls/dollar puts struck at USD0.925 expiring last Thursday. Traders speculated that this was to hedge short option positions originating from the Deutsche Bank or Bank of America trade. Traders at RBS declined comment.