Hedge funds are increasingly using currency options to bet on gains in the South Korean won and Chinese yuan following news of a US-Iran ceasefire, which has lifted risk sentiment and pushed oil prices lower, according to a report by Bloomberg.
The report cites data from the Depository Trust & Clearing Corp as showing that options trading for both currencies versus the US dollar hit one-month highs on Wednesday, with bullish positions dominating. Call options – profiting from currency gains – accounted for 70% more volume than puts of $100m or greater.
The won jumped 1.6% against the dollar as falling crude prices supported South Korea’s oil-importing economy. The yuan reached a three-year peak, boosted by both the ceasefire and a stronger-than-expected daily fixing by China’s central bank.
Investors are also actively trading offshore yuan options, favouring “downside” plays via digital puts and put spreads to manage risk while retaining exposure to yuan strength. Some are rolling earlier positions to lower strikes, locking in profits while maintaining a bullish view.
