HSBC Securities has purchased EUR1 billion (USD1.16 billion notional) in reverse knock-out euro calls/dollar puts. Traders said this is double the usual size of such trades. This size of option is only executed a couple of times a year, noted traders. Kathleen Rizzo Young, spokeswoman at HSBC, could not comment by press time.
The option, which matures on Oct. 30, has a strike of USD1.18 with the knock-out sitting at USD1.2210, according to traders. Last Friday spot was trading at USD1.163.
HSBC is believed to have paid a premium of EUR2.35 million to purchase the option, minus fees and hedging costs. The size of the punt is just over USD40 million, which is how far the contract may potentially move in-the-money, explained a trader. If spot hits the upper barrier it is knocked out and the option expires worthless.
