Wednesday, January 05, 2011

NZD/HKD FX contract entered into

In December 2009, I ended up with some NZD after an option I had written was exercised against me. After sitting on the side lines for a few days, I entered into a short term (14 day) contract at a strike price of NZD1.00 = HKD5.954. If the NZD remains at or below 5.954, I will keep the NZD and earn more interest than I would putting the money on deposit. If the NZD rises above 5.954, I will receive HKD and the total amount received will be larger than my original investment last year. In the latter case the annualised return will be about 7.7% (ignoring compounding).

Since I am happy holding either NZD or HKD longer term, I do not view these contracts as unduly risky and am not overly concerned about the "fat tail" issue associated with writing options.

No comments: