This is an excellent question: the decision about my USDCNH strategy, involved many parameters I use in my strategy. While I have been a China sceptic for a while, up to the end of 2014, I had considered betting against RMB to be a trade STRICTLY INFERIOR to bets against JPY and EUR, as described in Part III of

In 2015 the dominance relationships changed, I may write about this in more detail but bets against stock market and currency no longer appeared to be dominated by other trades. On the other hand the was still the negative carry.

However, as dramatic appreciation of RMB didn’t appear to be likely any bet against it had a flavor of an option (whether it was actually an option or plain forward). In Part II I wrote why I try to be careful about using options. But the are situations like this one when an option strategy offers a very favorable risk-reward and hence may not be omitted. Such trades feel like a version of a “free lunch”.

As a result of this analysis, in the Spring of 2015, I have established options positions betting both against Chinese currency and equities,

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