Some hedgers opted to buy one to three month Mexican peso puts against the U.S. dollar last week as implied volatility declined significantly from the previous week. Hedgers took the short view that the Mexican peso might decline against the dollar in coming weeks since the U.S. markets appeared to be rebounding.
A foreign exchange options trader in New York said hedgers were buying peso puts as protection in case the Mexican peso, which has been doing well against the dollar in the spot market recently, declines. On Wednesday, the U.S. dollar was trading at MXP9.29, versus MXP9.45 the week before, according to Anshu Goyal, v.p., Latin American foreign exchange options and forwards trader at Lehman Brothers in New York. Implied one-month volatility on the Mexican peso had declined to between 7.75-8.50% from the previous week's level of around 9.00%, added Goyal.
Trading was light during the week because of the Passover and Easter holidays, but there were a few trades with notional sizes of USD10-20 million. Typical strikes were slightly out-of-the-money.
The Mexican peso has been steadily strengthening since Jan. 16 of this year, when the U.S. dollar traded at MXP10.00.
