Derivs - FX

The slump in USD/GBP has fired some buying of sterling puts and volatility. But option players say the market continues to struggle with illiquidity.

BNP Paribas analysts are recommending an option play to position for the Hungary forint to strengthen as the country’s short-term refinancing issues begin to take a back seat to a long-term rosier macro-economic outlook.

Hedge funds are pushing for equity derivative contracts that allow for a third party to hold on to the collateral they post to dealers, according to Craig Stein, a partner in the structured finance and derivatives practice at law firm Schulte, Roth & Zabel in New York.

Fears about counterparty credit risk has some market players talking about a flight to exchange-traded and away from the over-the-counter market.

The freezing of the Icelandic krona spot market has left fx derivatives up in the air as trading in underlying effectively collapsed after the country’s three main banks were taken over by the state.

Huge option volatility in the Asian fx market has forced a practical shut down of the option market as traders in the last week have been unable to get pricing on any contracts outside of deliverable forwards.

Investors were selling USD/JPY at-the-money straddles today as spot rose and volatility settled from its recent extreme highs.

Royal Bank of Scotland fx strategists are advising clients to long the 12-month HKD/CNY non-deliverable forward.

Twelve-month USD/CNY non-deliverable forwards are trading at CNY7.02—a premium to the spot level of CNY6.8—reflecting concerns the yuan will begin depreciating against the U.S. dollar.

This is the second and final installment of this Learning Curve. Part I appeared last week.

Fx players are picking up euro puts and spreads on the EUR/USD cross ahead of tomorrow’s U.S. payroll figures and uncertainty around the USD700 billion bailout plan, still waiting to be passed by the House of Representatives.

Hong Kong’ s Temujin Global Asset Management intends next year to launch its maiden fund, an Asia-focused multi-strategy offering that will predominantly use directional and relative-value strategies on equity indices and fx in liquid markets.