August 28th, 2009 8:47 am | by John Jansen |

Analysts at Brown Brothers in their morning piece on the dollar note that risk seems to be back in vogue once again.

The stock market in China slumped 3 percent overnight and the “tentacles” (a great word from the Brown Brothers folks) of that decline have not spread around the globe.

Brown Brothers analysts note that the Polish zloty and the South African rand have shown strength overnight,indicating an appetite for risk.

They suggest that the next resistance level on the Euro is $1.4450 where they suggest that “a large double no touch is thought to be in place”.

I do not know what a double no touch is but suspect that it is an option which will make somebody quite short the Euro if it touches $ 1.4450. If someone can illuminate me on that one,please do.


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  1. 9 Responses to “Forex”

  2. By reddy on Aug 28, 2009 | Reply

    I guess it is an barrier option with two barriers with one above and another below. If one of them is breached, long has to pay-up premium

  3. By Arn on Aug 28, 2009 | Reply

    I’ve been hearing about this large option position too. In a double no touch, the option buyer receives a payout if the price at expiration has not breached either of the no touch levels over the life of the otion. If the position is large enough, the option buyer would definitely spend quite a few shekels to keep the price from beaching 1.4450. I suspect the lower bound was in the 1.3950-1.4000 range.

  4. By vol-trader on Aug 28, 2009 | Reply

    our fx coverage used to always pitch us those exotic options. personally, i never understood the point. its hard enough to figure out if something is going up or down and what vol will do once it gets there. there is no need (IMO) to add a knock out option (or any of the other exotic types).

    that’s my useless post for the day…

  5. By bergs on Aug 28, 2009 | Reply

    The DNT is reported to be 1.3950/1.4450. Meaning the owner of the DNT is long @ 1.3950 as EUR trades through the downside and short @ 1.4450 as it trades through the topside. This DNT is reported to be held by a player so large that the rumour of them in the screen is enough to move the FX market in their favour…

    That is All.

  6. By google on Aug 28, 2009 | Reply

    What Does Double No-Touch Option Mean?

    A type of exotic option that gives an investor an agreed upon payout if the price of the underlying asset does not reach or surpass one of two predetermined barrier levels. An investor using this type of option pays a premium to his/her broker and in turn receives the right to choose the position of the barriers, the time to expiration, and the payout to be received if the price fails to breach either barrier. With this type of option, the maximum possible loss is just the cost of setting up the option.

    A double no-touch option is the opposite of a double one-touch option.

    This type of option is useful for a trader who believes that the price of an underlying asset will remain rangebound over a certain period of time. Double no-touch options are growing in popularity among traders in the forex markets.

    For example, assume that the current USD/EUR rate is 1.20 and the trader believes that this rate will not change dramatically over the next 14 days. The trader could use a double no-touch option with barriers at 1.19 and 1.21 to capitalize on this outlook. In this case, the trader stands to make a profit if the rate fails to move beyond either of the two barriers.

  7. By Bman on Aug 28, 2009 | Reply

    Similar to long Strangle position?

  8. By Rob on Aug 28, 2009 | Reply

    ” its hard enough to figure out if something is going up or down and what vol will do once it gets there. there is no need (IMO) to add a knock out option (or any of the other exotic types).”

    True for most of us. However, if you are someone like the central bank of China with a bunch of reserves to throw at the problem, you can do a good job of preventing levels being triggered, enhancing yield and making a few quid selling the high and buying the low – particularly if everyone else is away of your interest.

  9. By Bman on Aug 28, 2009 | Reply

    It will get very interesting from here on out. There are many countries that would like to see their respective currency weaken in an attempt to export themselves out (including U.S.). Short $ is a very crowded trade currently.

  10. By FXDealer on Aug 28, 2009 | Reply

    Something to add to the DNT discussion…

    Consider the following:
    You are an options dealer. You sold a double no touch with a top strike of 1.4450 for EURUSD.
    If the market is currently at 1.4440, then there is a very high probability that the option will knock out at 1.4450 and you will get to keep your premium and make no payments to your customer. At that point, your mark to market PnL will show that you have made almost all of the premium you charged for the option (and if enough time had gone by, you would be showing to have recuperated some of the payout as well, since your mark to market had to account for the higher probability of having to pay out). Thus, the fact that you stand to make money if the EURUSD goes from 1.4440 to 1.4450 will mean that your delta is positive (i.e. you are long EUR/USD). A very reasonable decision to make in this situation would be to square out the delta and sell EURs since you do not want to lose your the mark to market PnL in case the FX rate falls. If you indeed sell enough euros to flatten your exposure; then if EURUSD trades at 1.4450 the option will expire and you will be left with no delta and a (potential sizable) short EUR position. At that point you will go to buy it back.
    If the sizes involved are large enough, this could cause an important move in EUR/USD to the topside.

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