Читать книгу The Foreign Exchange Matrix - Barbara Rockefeller - Страница 32

Another measure of bias or directional preference used by currency traders involves risk reversals. Market players, especially those trading FX options, watch the skew in option risk reversals to see which way sentiment is leaning in a given pair. A risk reversal is the difference between the implied volatility of an OTM (out of the money) call (right to buy a currency) and that of a put (right to sell a currency) option of similar maturities. Typically, 25-Delta calls and 25-Delta puts are tracked by the market players.

If a risk reversal is positive (calls are more expensive than puts) it means that for a given maturity (one-month, two-months, three-months, etc.) buying option protection or insurance in the event of a currency move higher is more expensive than buying protection for a move lower. Conversely, if a risk reversal is negative, then it means that buying insurance to protect against a currency move lower is more expensive than buying insurance to protect against a currency move higher. When risk reversals hit extended levels, it may indicate that a directional expectation has become excessive.

“This bias helps in assessing the excessive sentiment toward a directional preference and the common wisdom is to use it as a contrarian indicator,” explains Bashar Azzouz, Founder and Managing Director of 2 Rivers Consulting. Azzouz, who manages money and educates on option strategies, says the common practice is to generate two sets of observations from positive and negative risk reversals. The upper limit will be the mean (pick a historical time frame such as six months or a year) of the positive observations, plus one standard deviation of the positive observation. If the upper limit is exceeded, then the bias indicates excessive bullishness and therefore can be viewed as overbought. The lower limit will be the mean of the negative observations, minus one standard deviation of the negative observations. If the lower limit is exceeded, then the bias is indicating excessive bearishness and can be deemed oversold.

Risk reversals and their ranges can vary greatly between FX pairs. These instruments are quoted like forward foreign currency swap rates, typically from one week to one year, with the most attention paid to the one-month risk reversal. There are occasions where one period suggests future bullishness and another future bearishness. “When there is a divergence in the skew, say one-month (risk reversals) shows calls are bid over puts, while three-months shows puts are bid over calls, this may indicate a corrective short-term bullish outlook in a longer-term bearish trend,” Azzouz suggests.