Options Perspective: USD/SGD
With the current climate of USD selling, we have seen USD/SGD slide to a low of 1.3733 in recent weeks. We have recovered above 1.38 now and while we do expect the SGD to continue to appreciate in the medium term, a shortterm rally in USD/SGD is likely, but topside should be capped at 1.415. The MAS policy meeting on the April 10 is of particular importance and the bank’s view on this is that this will cause USD/SGD to rally in the near term as the central bank should choose to put more emphasis on economic growth. Based of this view, try the following trades.
Spot reference: 1.3845
Strategy 1
USD call spread
Buy 1.39 USD Call expiring in 1 month (April 24)
Sell 1.41 USD Call expiring in 1 month (April 24)
Cost 0.34% USD
The break even on this trade is 1.3950. Assuming this trade is done in 10mn a leg, it will cost a premium of 34k to put on with a potential max profit of 106k with spot above 1.41, so the risk reward looks decent.
Strategy 2
Calendar Risk Reversal
Sell 1.4150 USD Call expiring in 1 month (April 24)
Buy 1.3650 USD Put expiring in 3 month (June 25)
Cost 0.74% USD
This trade takes advantage of the fact that the RR in USD/SGD is higher in the 1 month than 3 month and favor USD calls. This is in line with our view that SGD will appreciate in the medium term and the sale of the topside would provide some cost relief to take on this view.
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