Fri, Feb 22 2008, 03:40 GMT
http://www.djnewswires.com/eu
Forex Options:Dollar/Yen Volatilities Quiet; May Rise Monday
1-month 25 delta risk-reversals favor: yen call/dollar puts by 2.00%/2.40%, compared with 2.00%/2.40% in New York Thursday.
TOKYO (Dow Jones)--Dollar/yen currency options were little changed in Tokyo on Friday as options players remained doubtful whether the greenback will fall sharply against the yen, although such concerns are increasing.
One-month at-the-money figures are misleading because "nobody wants to buy these options today" since their expiration dates will be around the Easter holidays, Tokyo options dealers said.
Instead, they stress the importance of one-week and three-month implied volatilities in gauging market sentiment. Those volatilities stood at 11%/11.5% from New York's 11%/11.4%, and 10.3%/10.6% versus 11.4%/11.65% in New York, respectively.
The option dealers said volatilities would rise if the dollar/yen spot rate falls below Y107, and may spike on Monday as players are likely to wait until next week to buy options to maximize their value.
The dealers said players are becoming more pessimistic about the U.S. economic outlook.
Overnight, the Federal Reserve Bank of Philadelphia's manufacturing index for February fell below -20 for the second straight month, which some analysts said is a clear sign the U.S. is about to enter recession.
"The dollar will probably fall against the yen," one option dealer in Tokyo said. "But (traders) are in no hurry since it's Friday, and to some extent they are still doubtful whether the dollar will fall sharply."
That's because the greenback, contrary to expectations, is hovering above New York Thursday's close of Y107.30 even though New York and Tokyo share prices declined in the morning. And options dealers tend to avoid buying short-term contracts on Fridays because they lose value over a weekend.
However, some spot dealers warn the dollar may soon fall below Y107 and they expect volatilities to spike on Monday.
"Today's dollar rates are bit tricky," said a spot dealer in Tokyo. "Since today is oil settlement day, players need the dollar. So once such demand is cleared away, the dollar has a great chance to drop."
In the Tokyo Friday morning session, some players bought one-week dollar put/yen call options with a Y107 strike and a $50 million face value at 11.5%, while others bought similar deals expiring next Wednesday at 11.25%. The deals are a hedge against a possible fall in the dollar, dealers said.
Thursday Thursday
Dollar/Yen 10.55%/10.95% 11.0%/11.4% 11.15%/11.55%
Euro/Dollar 8.60%/8.90% 8.70%/8.90% 8.75%/9.00%
Euro/Yen 11.75%/11.25% 12.0%/12.6% 12.15%/12.80%
3 Month Option Implied Volatilities
Dollar/Yen 10.3%/10.6% 10.4%/10.65% 10.3%/10.6%
The volatilities used are over-the-counter, at-the-money rates.
1-month 25 delta risk-reversals favor: yen call/dollar puts by 2.00%/2.40%, compared with 2.00%/2.40% in New York Thursday.
TOKYO (Dow Jones)--Dollar/yen currency options were little changed in Tokyo on Friday as options players remained doubtful whether the greenback will fall sharply against the yen, although such concerns are increasing.
One-month at-the-money figures are misleading because "nobody wants to buy these options today" since their expiration dates will be around the Easter holidays, Tokyo options dealers said.
Instead, they stress the importance of one-week and three-month implied volatilities in gauging market sentiment. Those volatilities stood at 11%/11.5% from New York's 11%/11.4%, and 10.3%/10.6% versus 11.4%/11.65% in New York, respectively.
The option dealers said volatilities would rise if the dollar/yen spot rate falls below Y107, and may spike on Monday as players are likely to wait until next week to buy options to maximize their value.
The dealers said players are becoming more pessimistic about the U.S. economic outlook.
Overnight, the Federal Reserve Bank of Philadelphia's manufacturing index for February fell below -20 for the second straight month, which some analysts said is a clear sign the U.S. is about to enter recession.
"The dollar will probably fall against the yen," one option dealer in Tokyo said. "But (traders) are in no hurry since it's Friday, and to some extent they are still doubtful whether the dollar will fall sharply."
That's because the greenback, contrary to expectations, is hovering above New York Thursday's close of Y107.30 even though New York and Tokyo share prices declined in the morning. And options dealers tend to avoid buying short-term contracts on Fridays because they lose value over a weekend.
However, some spot dealers warn the dollar may soon fall below Y107 and they expect volatilities to spike on Monday.
"Today's dollar rates are bit tricky," said a spot dealer in Tokyo. "Since today is oil settlement day, players need the dollar. So once such demand is cleared away, the dollar has a great chance to drop."
In the Tokyo Friday morning session, some players bought one-week dollar put/yen call options with a Y107 strike and a $50 million face value at 11.5%, while others bought similar deals expiring next Wednesday at 11.25%. The deals are a hedge against a possible fall in the dollar, dealers said.
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