One-month 25 delta USD/CNY risk reversals (CNY1MRR) fell on Monday to the lowest level since the end of August, indicating that investors are likely expecting a pullback in the USD/CNY and hence are seeking a downside protection (USD/CNY puts).
The risk reversals gauge currently stands at -0.05, the lowest since Aug. 29. Risk reversals are a gauge of investor expectations for a currency’s direction and are used to hedge against expected moves.
The negative print indicates greater demand for put options – derivatives that give investors the right to sell an asset. On the other hand, a positive risk reversals number indicates greater demand for calls – options that give investors the right to buy the asset.
The drop in the risk reversals from the Oct. 26 high of 1.025 to -0.05 represents a bullish-to-bearish trend change in the USD/CNY options market.
CNY1MRR
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