Bank of America: The implied volatility of the Hong Kong dollar options market rises

Financial News

Written by: Zhang Weilun

2020-05-28 21:56

Since Renmin Dao announced the Hong Kong version of the draft National Security Law on Friday (22nd), the exchange rate of the Hong Kong dollar has become volatile, and the forward contracts that have bet on the depreciation of the Hong Kong dollar in the future will increase. Bloomberg also reported that the US dollar against the Hong Kong dollar Options trading is the most active trading on Tuesday (26th). Investors also expect the volatility of the Hong Kong dollar exchange rate to increase.

After the Bank of America issued its latest report, it pointed out that after the US government no longer regards Hong Kong as a highly autonomous city, it is expected that the final action of the United States will be far away. With the cancellation of long-term Hong Kong dollar arbitrage transactions, forward contract risk profits have soared.

However, the bank pointed out that the option market risk premium is more controlled, including the rise of implied volatility, which is far from the historical extreme. The skewed premium is still far below the peak observed in the Hong Kong protests in 2019. Hedging transactions are still attractive.

The bank recommends selling 3 put options in US dollars and a call option at 7.75 Hong Kong dollars; buying a 12-month call option in US dollars and a put 1-year option at 7.85 Hong Kong dollars.

The bank also pointed out that the risk of hedging comes from the increasing activity of the Hong Kong IPO market, which may lead to the interbank interest rate and the appreciation of the Hong Kong dollar.

The Hong Kong version of the National Security Law voted that the Hong Kong dollar interest rate will generally rise, and the monthly interest rate will increase by 1%

Hong Kong dollar 1-month interest rate rises for 4 consecutive days to 1.13%

Hong Kong dollar interest rate hike across the board rose 1-month interest rate soared 39 basis points to 1.01%

Hong Kong dollar exchange rate