Options activity: OI in EUR ITM puts rise, USD/JPY dip could be short lived


The preliminary options data released by the CME for the EUR/USD EUUQ7 contract shows the investors are getting increasingly jittery about the near ninety degree rally in the common currency. 

EUR/USD EUUQ7 Open Interest Change: Current (Jul 28 - Prelim) vs Jul 27

Call Summary 
Total ITM OTM
OI Chg OI Chg OI Chg
45,098 1,639 31,149 -208 13,949 1,847

 

Put Summary 
Total ITM OTM
OI Chg OI Chg OI Chg
49,272 1,900 1,156 737 48,116 1,163

 

Big additions in the open interest (OI) positions in the ITM put options, coupled with a drop in the OI in the ITM call options shows potential for a correction in the EUR/USD pair. Another way of looking at it is that investors are boosting hedge against long EUR spot positions. OI in the 1.18 put option jumped by 730 contracts. 

The table also shows the jump in the OI in the OTM calls is bigger than the one seen in the OTM puts. However, it does not indicate any particular bias, given the expiry is just a couple of days away (on Friday). The theta (time value) decay gathers pace in the OTM options ahead of the expiry, hence investors would want to refrain from building directional (long call/long put) positions in the OTM options. 

The spike in the OI in the OTM options is more likely to be call/put writing. 

JPY seen lower

JPY/USD JPUQ7 Open Interest Change: Current (Jul 28 - Prelim) vs Jul 27

Call Summary
Total ITM OTM
OI Chg OI Chg OI Chg
23,538 2,198 4,266 -56 19,272 2,254

 

Put Summary 
Total ITM OTM
OI Chg OI Chg OI Chg
24,286 1,896 7,400 1,247 16,886 649

 

Again, the big jump in the OI positions in the ITM put options indicate the investors are either buying hedges against short USD/JPY positions/are seeing a quick recovery in the USD/JPY pair from the Friday’s low 110.55 levels. 

Moreover, it is working out well; given the pair hit a low of 110.31 in Asia before rising to 110.76 in early Europe

Total OI in calls is bigger than the OI in puts. But again one needs to note the contracts expire this Friday. So the build up in the ITM options is more reliable as an indicator of bullish/bearish bias than the total OI build up. 

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