Tomorrow my CNH short option will expire – worthless.
I bought it two years ago when implied vols were around 5 percent. Three weeks ago I already renewed my commitment and had to pay 10 percent. Thus, my greed for not paying up for one more year has cost me money. I should have known that the Chinese will try very, very hard to save face and only devalue when the cost of that will be unbearable. I had been told many times that this is an important element of Chinese culture.
I still think that the CNH puts are cheap :
- the Renmimbi spot is way overvalued
- 10 percent is still a low vol compared to what is typical for EM.
The absence of historical volatility doesn’t mean there is no uncertainty. On the contrary, history tells us that there might be a negative relationship between historic vol and future vol. This is the forest fire analogy Mark Spitznagel uses and which I find enlightening.
Because of that, I am also looking for ways to short the Saudi Rial…