US Markets

BUZZ-COMMENT-U.S. dollar call options gain to hedge U.S election risk

Credit: REUTERS/DADO RUVIC

Demand for USD call options has grown, mainly because of U.S. election hedging.

Oct 28 (Reuters) - Demand for USD call options has grown, mainly because of U.S. election hedging.

U.S. dollar calls are options that give owners the right to buy USD at a predetermined level against another currency on a future date, for an upfront premium, so clearly there are some concerns about post-election USD gains.

Polls show Joe Biden ahead of Donald Trump and the Democrats winning both houses of Congress. But if they fail to win the Senate, a fiscal package could be in jeopardy and risk aversion and USD gains would probably prevail.

This USD call demand stands out most against the euro and China's yuan and is reflected in option risk-reversal contracts. EUR/USD's benchmark one-month 25 delta risk reversal is trading with a small USD call/EUR put premium for the first time since June. The USD/CNH one-month 25 delta risk reversals demand a 1.35 implied volatility premium for USD calls/yuan puts -- also a high since June and despite the recent USD/CNH drop to two-year lows.

Options flag extent of actual volatility risk from the U.S. election

For more click on FXBUZ

1-3-12-month EUR/USD risk reversalshttps://tmsnrt.rs/3kATFcD

USDCNH 1-month 25 delta risk reversalhttps://tmsnrt.rs/31Rs53h

1-week implied volatility gets U.S election resulthttps://tmsnrt.rs/3oxmrNu

(Richard Pace is a Reuters market analyst. The views expressed are his own)

((Richard.Pace@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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