26 May 2020
USD/ZAR risk reversals hit 2.5-month low as call demand weakens
One-month risk reversal on USD/ZAR, a gauge of calls to puts, fell to 2.65 on Monday to hit the lowest level since March 9, having topped out at 5.425 in early April.
The decline to multi-month lows is reflective of the weakening of demand for call options on USD/ZAR.
A call option is a derivative contract, which gives the holder the right but not the obligation to buy the underlying asset at a predetermined rate on or before a specified date. It is essentially a bullish bet on the underlying asset. Meanwhile, a put option represents a right to sell.
The data validates South African Rand's two-month uptrend. The currency bottomed out at 19.339 per US dollar in early April and was last seen changing hands at 17.55 per dollar.
