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USD/JPY risk reversals hit record low for 5th straight day on put demand

  • Risk reversals on USD/JPY slip to record lows on rising demand for puts. 
  • A put option gives the holder a right to sell the underlying at an agreed price on or before a particular date.

Put options (bearish bets) on USD/JPY continue to draw bids amid sustained risk aversion in the global equity markets. 

A one-month risk reversal, a gauge of calls to puts on the currency pair, has set a new record low of -8.90 for the fifth straight day, a sign of strengthening demand or implied volatility premium for put options.

The gauge first hit a record low on March 6 when it dropped from -2.925 to -4.425 and has witnessed a near-90 degree drop from -0.65 over the last three weeks. A negative number indicates the premium claimed by puts is higher than that for calls. 

That said, consecutive record lows in risk reversals are indicative of extreme bearish sentiment. In such cases, markets usually see a strong move in the opposite direction. 

USD/JPY is currently trading at 103.37, representing a 1.9% drop on the day. The pair topped out above 112.22 on Feb. 20 and fell to a low of 101.18 on Monday, following which a minor corrective bounce to 105.92 was seen. 

Risk reversals

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