Option investors and strategists seem to be coming to different conclusions about the Bank of Japan’s latest policy tweak.
(Bloomberg) — Option investors and strategists seem to be coming to different conclusions about the Bank of Japan’s latest policy tweak.
While strategists see the yen strengthening after the BOJ gave the nation’s 10-year yields room to rise, dollar-yen option traders have adopted a completely different approach. Their reaction to the policy tweak so far has been to place more trades involving call options, which gain in value if the currency pair rises.
The varying stances reflect the shake-up in the markets as traders interpret Governor Kazuo Ueda’s surprise move July 28, with debate raging about what it means for policy.
Dollar-yen option trades on Monday on the Depository Trust and Clearing Corporation involved call options with strike prices as high as 150.15. That’s the price at which the purchaser of the contract can buy the underlying security.
Trades involving call options with strikes of 145 and higher totaled a notional amount of more than $3.8 billion, compared with $1.25 billion the day before the BOJ’s decision.
In an additional sign that option investors have become less bearish on the currency pair, the cost to hedge dollar-yen’s downside over the next month compared with its upside has fallen dramatically since Friday, and is now hovering near an eight-month low.
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