The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Foreign Exchange

Société Générale Touts Aussie Dollar Risk Reversal

Derivatives Week

--Rob McGlinchey



Strategists at Société Générale are recommending a risk reversal trade to take advantage of their view that the Australian dollar could strengthen against the U.S. dollar in the next six months, but decline again over the long term.


With spot at USD0.906, SocGen recommends investors buy a six-month European call option on the pair, with an out-of-the-money strike of USD0.92. To fund the call, the firm recommends investors sell a reverse knock-out put with an out-of-the-money barrier of USD0.73.


The move to sell a reverse knock-out put instead of a vanilla put would mitigate any losses from spot, falling but only as far as USD0.73. The seller has two opportunities to profit from the put: if spot rises or if it remains above the barrier at expiry.


"If you are bullish on the pair then the [reverse knock out] is the way to go...with a barrier you decrease the risk while also participating in a good outlook in the Australian dollar," Olivier Korber, fx options strategist in Paris, told Derivatives Week. He added that the pair should reach parity by June and peak at USD1.02 in September.






You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree