Options activity: Investors buy cheap insurance in EUR, signs of reversal in CAD
|EUR continued to rally on Friday as the political turmoil in the US dampened hopes for quick passage of President Donald Trump's stimulus and tax reform agendas. The EUR/USD pair rose to a fresh two-year high of 1.1685 in the Asian session today.
While there are no signs of a trend reversal, one must take into account the fact that investors are buying cheap insurance against a potential pull back in the EUR/USD pair.
EUR/USD EUUQ7 Open Interest Change: Current (Jul 21 - Prelim) vs Jul 20
| Call Summary | |||||
| Total | ITM | OTM | |||
| OI | Chg | OI | Chg | OI | Chg |
| 36,016 | 356 | 29,257 | -42 | 6,759 | 398 |
| Put Summary | |||||
| Total | ITM | OTM | |||
| OI | Chg | OI | Chg | OI | Chg |
| 36,855 | 1,574 | 109 | 88 | 36,746 | 1,486 |
The table above shows a big jump in the OI positions in the OTM puts along with a drop in the OI positions in the ITM calls. OI in near-the-money 1.17 put option improved by 565 contracts. This was also the most active option as per volume analysis. 1.16 put option OI also improved by 574 contracts.
The additions in ‘near-the-money’ put options represent hedging against long spot positions.
EUR- Cautiously bullish
Options activity suggests investors have taken of the overbought conditions, thus are cautiously bullish on the EUR. A pull back to 5-DMA - 1.16 and 10-DMA - 1.1523 levels look more likely.
CAD options: Big built up in ITM and OTM Put options
The data released by Statistics Canada (Statscan) on Friday showed the annual inflation rate slowed to a 20-month low of 1% in June, well below the central bank’s 2% inflation target. Core measures and retail sales showed strength, although the dismal headline figure has not gone down well with the investors.
This is evident from the big improvement in the OI positions in the ITM and OTM put options in the CAUQ7 contract.
CAD/USD CAUQ7 Open Interest Change: Current (Jul 21 - Prelim) vs Jul 20
| Call Summary | |||||
| Total | ITM | OTM | |||
| OI | Chg | OI | Chg | OI | Chg |
| 13,567 | 140 | 10,261 | -1 | 3,306 | 141 |
| Put Summary | |||||
| Total | ITM | OTM | |||
| OI | Chg | OI | Chg | OI | Chg |
| 15,031 | 1,436 | 1,308 | 848 | 13,723 | 588 |
The high volume was seen in the 0.79 put option, which also witnessed an improvement of 414 contracts in the open interest (OI). In-the-money (ITM) put options - 0.80 and 0.7950 - also witnessed an addition of 263 contracts and 171 contracts, respectively. Meanwhile, there was hardly any change in the call side of the story.
This is clear sign that the investors are now betting on the downside in the CAD. USD/CAD, being extremely oversold as per the 14-day RSI, could witness a technical correction to 1.2711 (weekly 5-MA).
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