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Citigroup is recommending investors take a view on fx spot movements and credit spreads while volatility and correlation between the asset classes is still relatively high by historical standards.
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Some hedge funds in Asia have recently been spotted using conditional option strategies, where the payout of a vanilla equity index option is dependent on the movement of a pair or basket of currencies. The structure reduces the upfront premium.
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Standard Chartered is advising investors to pocket one-year USD put/HKD calls struck at HKD7.75 to capitalize on low implied volatility on the currency pair, which is now around 0.74%. Last November, implied vol was around 1.3%.
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Structured products boutique Luxembourg Financial Group and Swedbank recently launched a fund that uses short- and long-term options to capture growth from a range of underlyings while employing a mechanism to help mitigate losses in case the fund performs badly.
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An unidentified reinsurer has bought USD4 million in notional protection against hurricane losses throughout the state of Florida from now through Dec. 31, 2010 via an over-the-counter binary option on the Chicago Mercantile Exchange Hurricane Index.
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Bank of New York Mellon’s Evolution Currency Option Fund last month bought three to six month call spreads on the Brazilian real against the U.S. dollar.
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Private banks in Asia are buying exotics tied to the performance of the yuan and Chinese stocks, which they and their clients are not licensed to trade directly.
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Deutsche Lufthansa AG entered a JPY760 million (USD8.3 million) currency forward last week to hedge ticket sales in Japan.
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Cater Allen Private Bank, a subsidiary of Grupo Santander, has launched a five-year FTSE 100-linked structure with the potential for a 32.5% return based on an appreciation in the index.
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Royal Bank of Scotland has launched what it is calling a Navigator Deposit, a five-year retail note that offers uncapped returns from the growth of the RBS U.K. Navigator Index. The structure uses over-the-counter options referencing the Navigator Index, which in turn generates a return based on its exposure to the FTSE100 through futures.