A stampede of protection buying on Australian dollar positions saw Aussie/greenback risk reversals switch to favor Aussie puts. Risk reversals on the currency pair stood at 0.4 vol in favor of Aussie puts last Thursday compared with 0.4 vol in favor of calls 10 days ago, said one New York-based trader. A dive in the fortunes of the Aussie dollar from a high of USD0.68 on July 7 to USD0.65 last Thursday, was the main driver of the activity, said traders.
The trades have been larger than normal, with some hitting the USD1 billion mark, observed a trader. In addition, the trading is all going one way, with all players asking for prices to buy Aussie puts/dollar calls and sell Aussie calls/dollar puts, he noted.
Australian banks are likely to be the most active players, possibly entering risk reversals in order to adjust their portfolios in anticipation of any correction, said a trader. The recent sell off of Japanese bonds has also impacted the Aussie dollar, precipitating many of the options trades, added another player.
