Lehman Brothers is recommending investors sell U.S. dollar calls against the Taiwan dollar to take advantage of anticipated further weakening of the Asian currency. "The Taiwan dollar has hit post-crisis lows," said Ronald Leven, currency strategist at Lehman in Tokyo. However, further downside is limited as the central bank likely will intervene to halt a wholesale sell off. Lehman suggests selling a one-month U.S. dollar call struck at TWD33.70. The Taiwan currency was trading in the spot market at TWD33.45 on Thursday. Implied volatility stood at 3% for the one-month call option versus a historical level of 2.5%.
Levin predicts that central bank intervention will keep the Taiwan dollar trading in a range between TWD33-33.60 in the next two months.
