Trading Latin American options

April 1, 2015 12:00 PM

Futures and options on the Mexican peso and Brazilian real are separated in longitude from  currencies in Europe and Asia, but when it comes to pricing and volatility, they fit in comfortably with other currencies. 

“Five currencies” (below) shows the relationships between the Mexican peso, Brazilian real, Argentine peso, Swiss franc and euro from Jan. 1, 2015 through Feb. 8. As shown on the chart, all of these currencies were relatively stable until 
Jan. 15. On that date, the Swiss National Bank withdrew its policy of keeping the franc within €1.20. 

The market reaction was immediate, with the cumulative percentage change from Jan. 1 escalating more than 15% for the franc and falling approximately 
5% for the euro. These changes illustrated the degree to which the Swiss monetary policy influenced the franc and euro, moving both currencies outside the framework of normal market pricing for an extended period.

Following the announcement by Swiss banking authorities, four of the currencies were in a period of adjustment over a two-week period. From the end of January through the first week of February there was a return to stability, especially on the part of the Swiss franc.

Throughout this time of readjustment for currency values, the Argentine peso moved very slightly, losing some value consistently versus the U.S. dollar but under management of the Central Bank of Argentina. The Mexican peso and Brazilian real showed a delayed reaction, with increasing price changes for 10 days beginning Jan. 20. 

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About the Author

Paul Cretien is an investment analyst and financial case writer. His e-mail is