After years of lost option premiums, Morgan Stanley Investment Management’s bet on a weakened Chinese renminbi may finally pay off.
The recent drop in the offshore Chinese currency against the dollar has propelled one of the manager’s option positions into the money, making it the first time any position has been close to paying out in five years of running the strategy.
Totalling $9.4 billion notional with Goldman Sachs as the counterparty, the bought call options are on the books for at least three MSIM funds and for three others it acts as a subadviser responsible for trading strategy. The positions will expire in the money if spot US dollar/offshore renminbi remains above the 7.27 strike on November 10. Spot has closed above that level several times since late October and was at 7.3 as of November 2.
Back-of-the-envelope calculations show…
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