Options Brief- Week of July 17
Unless you’ve been living under a rock, you heard that the Bank of Canada (BoC) raised interest rates for the first time in 7 years last week. The overnight rate target was adjusted to 0.75 percent, an increase of 0.25 percent (from 0.5 percent). Citing the statement release from the BoC, «recent data have bolstered the Bank’s confidence in its outlook for above-potential growth in the economy». Following this decision, the Canadian dollar soared 1.77% to 78.78 cents U.S., its highest level since August 2016.
Obviously, opportunities in the options market emerged from this situation, more specifically in the currency options market. An increase in the Canadian dollar translated into a falling U.S./CAD exchange rate, the underlying of USX options. Therefore, if an investor would have wanted to position themselves to profit from a raising loonie prior to the BoC statement, on July 10th, they could have purchased an at-the-money put option for 1.56$. The day following the central bank’s decision, the option buyer could have sold back their put option at the bid price of 2.77$ and cash in a 77.56% return.
Additional movements in the Canadian dollar are expected in the short and long-term, so you can review the specifications of the USX and explore the strategies that can be used to express specific views on the US/CAD rate.
| Date | Strike Price | Put Option Expiry | Bid / Ask | Return (%) |
| July 10 2017 | 130 | July 21st2017 | 1.50 /1.56 |
77.56%
|
| July 13 2017 | 130 | July 21st2017 | 2.77/ 2.83 |
The information provided on this website, including financial and economic data, quotes and any analysis or interpretation thereof, is provided solely for information purposes and shall not be construed in any jurisdiction as providing any advice or recommendation with respect to the purchase or sale of any derivative instrument, underlying security or any other financial instrument or as providing legal, accounting, tax, financial or investment advice. Bourse de Montréal Inc. recommends that you consult your own advisors in accordance with your needs before making decision to take into account your particular investment objectives, financial situation and individual needs.
All references on this website to specifications, rules and obligations concerning a product are subject to the rules, policies and procedures of Bourse de Montréal Inc. and its clearinghouse, the Canadian Derivatives Clearing Corporation, which prevail over the content of this website. Although care has been taken in the preparation of the documents published on this website, Bourse de Montréal Inc. and/or its affiliates do not guarantee the accuracy or completeness of the information published on this website and reserve the right to amend or review, at any time and without prior notice, the content of these documents. Neither Bourse de Montréal Inc. nor any of its affiliates, directors, officers, employees or agents shall be liable for any damages, losses or costs incurred as a result of any errors or omissions on this website or of the use of or reliance upon any information appearing on this website.
BAX®, CADC®, CGB®, CGF®, CGZ®, LGB®, MX®, OBX®, OGB®, OIS-MX®, ONX®, SCF®, SXA®, SXB®, SXF®, SXH®, SXM®, SXO®, SXY®, and USX® are registered trademarks of the Bourse. OBW™, OBY™, OBZ™, SXK™, SXJ™, SXU™, SXV™, Montréal Exchange and the Montréal Exchange logo are trademarks of the Bourse. All other trademarks used are the property of their respective owners.
© 2024 Bourse de Montréal Inc. All Rights Reserved.