Options Causing U.S. Dollar to Converge on 90 Yen, Saito Says
The dollar is likely to stay close to 90 yen ahead of the expiration of dollar put options with strike prices at that level, said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale SA, Bloomberg reported.
"Transactions related to options that will expire on Jan. 21 at 10 a.m. in New York are such that every time the dollar gets above 90 yen it gets sold again, while dips below 90 yen may prompt dollar buying," Saito said.
After hitting a 10-day high of 91.30 yen in Tokyo on Jan. 19, the dollar has been trading in a narrow range above 89.69 yen.
More than $7 billion worth of dollar put-yen call options with a strike price of 90 yen is set to expire today, according to Saito. A put option gives its holder the right without obligation to sell an underlying asset, while a call option gives the holder the right to buy an asset.
Sellers of dollar put options have an incentive to buy the dollar any time the currency approaches the strike price as the expiration date draws near. Buyers of those options would benefit if the dollar traded below the strike price at expiration.
The sheer quantity of the dollar put options suggests that their expiration "will become a major factor leading to market volatility," Saito added.