The Zhitong Finance App learned that foreign exchange options traders are betting that the Korean won will continue to lead the Asian foreign exchange market since July. On Wednesday, the premium gap between one-month options benefiting from a rise in USD/KRW versus options benefiting from a fall in USD/KRW narrowed for the third day in a row, indicating that the market's expectations for a further strengthening of the won are heating up.
This change comes as the USD/KRW exchange rate fell further to about 1,350 on Wednesday, after the exchange rate fell 1.3% on the previous trading day, the biggest one-day decline in a month. Since the beginning of July, the won has risen by more than 14%. As Korean chipmakers continue to send overseas capital back to the country to expand production capacity, and booming global demand for artificial intelligence (AI) and semiconductors drives economic growth, the rise in the won is expected to continue further. These favorable factors are prompting options traders to bet that the rise of the won will continue until the end of the year.
Saurabh Tandon, head of global foreign exchange options at Standard Chartered Bank in Singapore, said: “Currently, there is active market demand for the USD/KRW downward structure, mainly through put options spreads (put spreads) or European knockouts (European knockouts) layouts, and the period mainly covers the end of the year.”
The two largest USD/KRW deals announced on September 21 were both put option spreads, which also reflects the above position layout. According to Depository Trust & Clearing Corp. (Depository Trust & Clearing Corp.) data, one of these transactions will expire on October 21, and the exercise prices are 1,370 and 1,343, respectively. If the USD/KRW exchange rate is at or below 1,343 at maturity, the transaction will reach its maximum value.
The cost of a put option spread is lower than a standard put option (that is, an ordinary vanilla option) because when the exchange rate falls below the lower exercise price, its return is limited. European-style knockout options can also reduce upfront costs, but if the USD/KRW exchange rate falls below a pre-set knockout level at maturity, the option will expire and become worthless.