- USD/CNY risk reversals drop below zero for first since March.
- The data indicates puts are drawing a higher price than calls.
USD/CNY puts have become more expensive than calls for the first time since March.
Risk reversal, which reflects pricing differential between puts and calls, for one-month 25-delta options, traded at -0.075 skewed in favor of USD/CNY puts on Monday, having topped out at 0.90 on May 28.
In layman’s terms, the negative number is reflective of stronger demand for put options or bearish bets on USD/CNY compared to call options or bullish bets. In other words, investors are adding bets to position for a decline in USD/CNY.
At press time, USD/CNY is trading at 7.008, representing a 0.15% gain on the day, but down over 2% from the high of 7.1766 registered on May 27.
The pair could slide further in the near term if the equities shrug off renewed virus concerns and remain bid on the back of the unprecedented monetary and fiscal stimulus measures launched by the US and other global authorities.
China data released early Tuesday showed exports rose for the third straight month in June, a sign of recovery in the global economy. Also, imports rebounded sharply, indicating a recovery in domestic demand. Both exports and imports are encouraging signs for the global economy.
Risk reversals
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