Dollar/yen options deployed for Y2K risks will expire en masse this week : LUSENET : TimeBomb 2000 (Y2000) : One Thread


FX options - Dollar/yen expirations rush in focus


LONDON, Jan 17 (Reuters) - Dollar/yen options deployed for Y2K risks will expire en masse this week and will keep currency markets choppy, particularly as the spot dollar fell on Monday to a sensitive strike price zone, traders said.

Since option market-makers rode out the Y2K changeover with largely neutral positions, the expiries should in theory be a neutral factor. But the sheer size of the at-the-money options maturing was keeping the market cautious, traders said.

"Because no one had been trading options expiring in the first two weeks of the new year, a lot of January expiries have been bunched up right around here," said Hiroyuki Kobayashi, a manager of Sakura Bank's trading group in London. A bulk of the expiring options had strike prices around 105 yen, and Monday's dollar selloff toward that level was already stirring up short-dated option prices.

"We've got some really good sized ones -- tomorrow at 105 (yen), we've got at least a billion dollars worth," noted Mark Moor, European director of foreign exchange at Thomson Global Markets in London.

He added that comparable amounts were maturing on Monday and Wednesday, while euro/dollar options were not experiencing a similar expiration jitters.

At-the-money one-month dollar/yen options were priced at 11.95/12.25 percent implied volatility in early European trade, up more than half a point from Friday's close. Longer maturities were also a touch firmer but not as much as the front end.

Besides the expirations, traders noetd that the event risk for the Group of Seven finance ministers' meeting on Saturday and the Federal Open Market Committee meeting on February 1-2 were likely to keep shorter-dated options in demand.

The direction in which the dollar was approaching the 105 level was also a factor, traders added.

"It's a headache for the short positions at the moment," he said, noting that a similar spot move toward 105 would have been less of an issue.

Premiums on short-dated options have very high acceleration rate -- called gamma -- against spot movements when the spot rate is near the strike price, and spot dollar/yen tends to be more volatile on the downside.

When market makers are short those options, spot market gyrations could be exaggerated as the dealers' negative gamma exposures would force them to sell dollars when the greenback is falling and to buy them when it is rising.

Moor at Thomson predicted one-month volatility would jump by another one point if spot broke decisively below 105 yen.


-- (news@of.interest), January 17, 2000

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Tokyo stocks ease, hurt by BOJ liquidity cut back

Risa Maeda


TOKYO, Jan 18 (Reuters) - Tokyo stocks eased by midday on Tuesday, falling into a natural correction amid concerns that Monday's sharp rise of more than 2.5 percent in the benchmark Nikkei average may have been overdone.

The Nikkei was down 249.25 points or 1.28 percent at 19,187.98 by midday. March Nikkei futures fell 60 to 19,240.

Profit-taking was also fuelled by disappointment after the Bank of Japan (BOJ) on Tuesday ended its Y2K-related excess liquidity supply to the financial markets, traders said. There was a vague hope that the central bank may continue its extremely accommodative market operations at least before the Group of Seven (G7) meeting this weekend to encourage other G7 members to agree to the view that a firmer yen is undesirable.

-- (news@of.interest), January 17, 2000.

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