Trading strategies: When is a barrier event not a barrier event?

It is not uncommon in any market for an underlying to gravitate towards certain option strikes as they near maturity. In foreign exchange, which is arguably the most sophisticated options market, it is increasingly the barrier component of exotic trades that acts as the magnet. The amount of leverag...

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Bibliographic Details
Published in:Euromoney 2007-08, p.1
Main Authors: Lee, Oliver, Hayward, Chloe
Format: Article
Language:English
Subjects:
Foreign exchange
Hedge funds
Investment policy
Leverage
Lines of credit
Options markets
Options trading
Online Access:Get full text
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Summary:It is not uncommon in any market for an underlying to gravitate towards certain option strikes as they near maturity. In foreign exchange, which is arguably the most sophisticated options market, it is increasingly the barrier component of exotic trades that acts as the magnet. The amount of leverage certain structures can provide results in huge buying and selling of the underlying as participants try to defend or knock out the barrier. It was therefore not a major surprise when spot EUR/SEK moved towards a significant barrier that was known to be in place at 9.1500 on Jul 5, 2007. Market sources say that this particular option was initiated by Drawbridge, part of the US-listed Fortress Investments Group.
ISSN:0014-2433