The latest FX options quant screener emphasizes that USDJPY remains the most expensive G10 volatility. It also has the most expensive smile parameters up to the 6m tenor.
It suggests buying an RKO put, taking advantage of the current market pricing. We pick the 6w tenor to get exposure to the near-term reaction to the next BoJ meeting.
Trade dynamics: Buy USD/JPY 6w put strike 97, knock-out 93 Indicative offer: 0.18% (vs 0.73% for the vanilla, spot ref: 100), we upheld the strategy in anticipation of something of a slide as we get below 100. Once we get to 95 or so, we’ll be getting ourselves emotionally attached to long-term yen shorts again, but that’s another story.
Risk profiling: Breaking the channel on the downside, the loss is limited to the premium, but the option will be cancelled if the spot hits 93 at any time. This level corresponds to the lower bound of the channel at end-September when the option expires, after the 21 September BoJ meeting.


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