FXY (Japanese Yen) - Bet on Yen Upside Points to Bet on a Market Tumble
FXY (Japanese Yen) - Bet on Yen Upside Points to Bet on a Market Tumble
At the time of this post FXY (ISE Yen) is trading 109.31. A market snapshot is below.
This post is connected to the "The European Crisis Explained and Currency Option Trading" post. It’s inextricably linked to the European crisis.
The Yen Trust traded over 17,000 options in the first two hours on total daily average option volume of just 1,894. All but 128 contracts have been calls. The largest trade has been a 110/125 call spread purchase in Jan 2011. The Stats Tab and Day’s biggest trades snapshots are included (click either image to enlarge).
The Options Tab (click to enlarge) illustrates that the calls are mostly opening (compare OI to trade size). You can also see that there is no OI even close to that large anywhere else near the money.
This is a bet that the Japanese Yen goes up. The total outlay is 100 * 8709 * ($4.40 - $1.00) = $2,961,060. Max gain is at 125 for $10,399,440.
The Skew Tab snap (click to enlarge) is included. I have just shown Jan 2011.
As the prior post discussed, the Yen shows upside risk; i.e. the upside is more expensive than the downside. I have highlighted the 110 and 125 calls. This is a bet that gets long while selling the expensive vol (the upside).
This bet is not in a vacuum. It implies not just a bet on the strength of the Yen, but possibly/probably on a downward move in the GBP, Euro and an upward move in the USD relative to those two. The way the market has behaved recently, that would imply a downward move in our equity indices.
This is trade analysis, not a recommendation.
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About Ophir Gottlieb
Ophir has worked as an equity option market maker and prop trader on the NYSE ARCA exchange floor since Feb. 2008. Prior to working on the exchange floor, he worked as a structurer on the Countrywide trading desk and before that as the Director of Client Services and Research for the quant modeling firm Audit Integrity. He has a Masters degree in Financial Mathematics from Stanford University. He also has an MBA in finance and an undergraduate degree in quantitative economics with an area of focus in mathematics.
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