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Foreign Exchange

USD/JPY: Flob-a-dob!

There was some real fun and games in Bill and Ben (that’s dollar/yen for those readers who don’t understand rhyming slang) on Wednesday around the 3pm option expiry time. This time last year, I wrote about a huge call spread (100.00 versus 90.00 strikes) Citi executed, and sources say it was this strategy’s expiry that caused all the excitement.

From what I hear, the market convinced itself that Citi would need to buy back as much as $7 billion when the options expired; at 3pm, spot USD/JPY was hovering above 90.00 and to add to the excitement there was also talk about the expiry of a large digital. However, the bids soon disappeared and the market talk is that Citi had it off.

Sources say that the original trade was a management hedge. I teased one contact at Citi, saying that it was probably put on because of some arcane correlation between USD/JPY and the credit books. “What are the chances that the correlation has broken down and that you’ve lost more in the other book than you made in FX?” I asked. Apparently, I’m a long way off the mark and it appears Citi has got off to a flier in 2009.

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