Since July, it has already surged 14%! FX options traders are betting the Korean won's rally will continue.

FX options traders are betting that the Korean won's rally, which has led Asian foreign exchange markets since July, will continue. On Wednesday, the premium gap between one-month options that benefit from a rise in the USD/KRW exchange rate and those that profit from a decline in USD/KRW narrowed for a third consecutive day, indicating growing expectations for further won strength. This shift comes as the USD/KRW rate fell further to around 1,350 on Wednesday, after dropping 1.3% in the previous sessionits largest single-day decline in a month. Since early July, the won has appreciated more than 14%. The rally is expected to extend further as Korean chipmakers continue repatriating overseas funds to expand capacity, and as booming global demand for artificial intelligence (AI) and semiconductors drives economic growth. These favorable factors are prompting options traders to bet the won's rally will persist through year-end. Saurabh Tandon, global head of FX options at Standard Chartered in Singapore, said: "There is currently active demand for USD/KRW downside structures, mainly through put spreads or European knockouts, with tenors primarily covering through year-end." The two largest USD/KRW trades disclosed on September 21 were both put spreads, reflecting this positioning. According to Depository Trust & Clearing Corp. data, one of them expires on October 21 with strike prices of 1,370 and 1,343. If the USD/KRW exchange rate is at or below 1,343 at expiry, the trade will reach maximum value. Put spreads cost less than standard puts (vanilla options) because their payoff is capped once the exchange rate falls below the lower strike price. European-style knockout puts can similarly reduce upfront costs, but if the USD/KRW rate is below a pre-set knockout level at expiry, the option becomes void and worthless.