FXY - Huge Yen Options Bet Points to Bet on Market Downturn

Discussion in 'Options' started by livevol_ophir, May 28, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    FXY (ISE Yen) is trading 109.31.

    <img src="http://4.bp.blogspot.com/_hMry1m7UF10/S__eKpek8LI/AAAAAAAACpg/ZVSTMtYBp5s/s1600/fxy_summary2.gif">

    This blog is connected to the <a href="http://livevol.blogspot.com/2010/05/currency-option-trading-and-greek.html">"The European Crisis Explained and Currency Option Trading"</a> blog. It's inextricably linked to the European crisis.

    The Yen Trust has 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 (<a href="http://livevol.blogspot.com/2010/05/fxy.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/05/fxy.html">in the article</a>) 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 (<a href="http://livevol.blogspot.com/2010/05/fxy.html">in the article</a>) is included. I have just shown Jan 2011.

    As the prior blog 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. The way the market has behaved recently, that would imply a downward move in our equity indices.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews here:
  2. Coolio


    Yes, I've been trolling for a long entry on Mr. Yen. (FXY) .
  3. These listed FX products are such a tiny part of the real market in currency options they're often insignificant. The OTC options world for currency is the only market that matters
  4. well...this big trade is looking good so far.
  5. Coolio


    Still waiting for a long entry on FXY
  6. Since OP posted, the Yen did the opposite of his smart analysis.
  7. Is FXY "arb-able" against the CME yen futures and options? :confused:
  8. They're arb able vs. the zillions of FX products out there. The thing about the original post is that the listed products are usually not the primary trades, the volume you see in the listed FX products is generally a lay off from some OTC stuff.
  9. Yeah, the "cash guys" can make money arbing against the exchange-traded stuff. The "exchange guys" probably can't do the same against the cash market. Oh well. :(
  10. Yeah, the average size that Thomson reports in OTC touch markets is like $30MM.
    #10     Jun 3, 2010