Return Of Yen-Sanity Sparks Chaos
The yen. It's never complicated, but somehow it never ceases to confound.
If it seems like only a couple of weeks ago that the currency was languishing at its weakest levels against the dollar in decades, that's because it was. But things took a dramatic turn in recent days amid speculation that the BoJ's cautious exit from the world's grandest experiment in ultra-accommodative monetary policy is proceeding apace (or proceeding at some pace, at least) at a time when the Fed's poised to start cu
Back when I lived and worked in McElligot’s world, those “zero premium” trades selling calls to fund the purchase of puts or visa-versa were called “mini-max” trades in Tokyo and “risk reversals” in the English speaking world.
They were about 100% driven by the call/put skew which Mr. Mc refers to now and then.
The size of some of them were pretty righteous. The initial delta hedge I’ve have to execute were often $500 million which was a large amount in the FX markets back then, even in Tokyo.
I’d wager the dollar amounts are much larger now.
Carry trades work really well, until they don’t. Maybe some day we will be able to say the same about all of the volatility selling strategies which are supporting stocks and other markets. Maybe not.