The spread between the one-month and one-year risk reversal rate has started to narrow, showing options traders are speculating less on a decline in the U.S. currency, Miki said. Risk reversals are the difference between the cost for call options, which grant the right to buy a currency at a fixed price, and puts, which allow sales.
``I'm watching this term structure because it's all about sentiment,'' Miki from the unit of Japan's biggest publicly traded lender, said in an interview in Tokyo. ``This spread will narrow when the dollar starts to recover. I see the potential for a rise in the currency.''
The dollar traded at 108.24 yen at 6:05 a.m. in London from 108.33 late yesterday in New York, when it rose to a one-month high of 108.38. The U.S. currency has gained 1.6 percent against the yen since the start of this month. It fell 10.5 percent over the past year.
The one-year 25-delta risk reversal rate for dollar-yen options was 1.275 percentage points more than the one-month rate today, down from an almost four-year high of 2 percentage points on Dec. 7. Delta measures the change in the price of an option relative to moves in the underlying currency.
Read more:Dollar May Rebound to 110 Yen Options Show, MUFG's Miki Says
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