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Derivatives

Euro/Dollar Reverse Knock Outs Take Off As Single Currency Rallies

Foreign exchange investors are flooding into euro calls/dollar puts with reverse knock outs as the euro strengthens against the ailing U.S. dollar. One New York-based trader explained that purchasing the options gives clients a low-cost exposure to the single currency's surge.

While most professionals expect the euro to strengthen against the dollar some are nervous about the potential volatility while it appreciates, he said. Statements from the European Central Bank have suggested that it doesn't want the exchange rate to move too quickly, which has encouraged more investors to buy into the rally, he added.

Typical trades have strikes above USD1.20-1.22 and one or two month maturities. Last Wednesday the currency pair was trading at USD1.17.

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