Hello everyone, so I would like to bet on a Yuan devaluation (against $). Is anybody aware of a good way to buy cheap USD/Yuan call options? I found some options on the CYB ETF and calls from Goldman Sachs but they seem rather expensive. Thanks in advance
That is an interesting trade. I am not sure what you mean by expensive. If you mean IV relative to HV, then yes. I have yet to research what exactly is going on with the fundamentals. You could finance a short position with Risk Reversals (Short call. long put) almost indefinitely at lowered premium costs than a naked put. There is nothing you can do with the put skew. People see this coming from a mile away.
It's already been devalued substantially. I suspect it will actually get stronger. That aside, the options are probably not expensive, you may not be accounting for the interest rate differential which is substantial.
Let me further clarify something for you, in the land of FX, the ATM strike is NOT the ATM strike. The ATM strike is the forward. Therefore, when the interest rate differential is high (as in this case), what you think is an OTM call is really an ATM call. Just a heads up.
Additionally, it is really hard to buy or sell any options for CYB at a fair price. You will be shopping all day.
Wow I did not expect such great answers. Thank you. In terms of expensive: I remember hearing from Mark Hart of Corriente that he bought 1 year 7 calls on the USD/Yuan which cost only 20 Bp per year. As far as I remember this was in 2012 or so the volatility was much lower and they are supposed to be much cheaper than today. But with the CYB options it appears that in case of an e.g. 30% devaluation the CYB Jul'15 16 put option with strike 20 would give me 'only' 4 times the money (20-24,8*0,7)/0,65=4,06 which looks rather expensive in regard to the options Mark Hart talked about, which should multiply by much more. If I am wrong with any of this thinking, please help. @xandman So you mean the puts on the yuan is expensive for a reason and it is likely that the CYB options are not really expensive in comparison to other? @Maverick74 This is why I prefer options over spot FX. I want to be limited with 100% at the downside. If you have better ideas on how to bet on the Yuan I would be happy to hear about it. Thank you.
I don't trade these options. Out of curiosity, do you recommend an exchange white paper or text on currency options which covers these kinds of issues?