Wednesday, December 9, 2009

Wisdom Tree Chinese Yuan (CYB) - Profit from Nothing: Call Roll

CYB is an ETF tracking the Chinese Yuan. You can see the LIVEVOLTM Pro Summary below.

The ETF averages 491 option contracts trading a day but in the first 2 hours has done over 28,600. Further, over 28,300 have been calls. You can see the Company Tab snap below (click image to enlarge).

The largest trade, essentially the entire volume, was ~14,000 Apr 25/Jul 26 Call spreads (buying Apr - I believe). The largest trades from the Company Tab are below.

That trade, in and of itself, is positive delta. You can see the deltas from the Options Tab below (click to enlarge). PIMCO recently came out as bullish on the Yuan - belief that Beijing will soon ease its grip on its currency. My first inclination was to assume this was a bullish bet along those lines. However, notice the OI - Apr 25 Calls might be closing, July 26 are definitely opening.

The OI on the Apr 25 calls popped twice - once on 11/12 and once on 11/24. I took a look at the trades on 11/11 and 11/23. 11/11 was dubious as to direction (they crossed mid-market). But the 11/23 trades all posted on the bid (sales by cust). I have included those below (click to enlarge).

Since those trades caused an OI increase it must be that the trades on 11/11 were also sales. So what?

That means buying Apr 25 calls is most likely closing the sales from prior. The sale of the Jul 26 Calls (opening) are new sales. In my opinion this was nothing more than a call roll from Apr to July. Rolls are not that unusual, this month combination given that we are in Dec is pretty weird. That makes me slightly less confident in the analysis. Either way, this is an exellent opportunity to study unusual order flow which at times is nothing more than the same bet moving months (rather than an actual new position).

If this was a roll - the sale @ $0.75 and purchase back for $0.50 is 0.25 x 15,000 x 100 = $375,000 gain simply winning b/c the Chinese gov't did what they said they would do - nothing.

Legal Stuff:

No comments:

Post a Comment