Options Pessimism Shows AMLO Isn't Winning Over Markets Quickly

(Bloomberg) -- Mexican president-elect Andres Manuel Lopez Obrador’s conciliatory language toward the world of business isn’t cutting ice with traders of currency options.

Lopez Obrador assured investors he will govern Mexico as a pragmatist and won’t nationalize companies. Yet the peso fell after confirmation of his victory in Sunday’s elections. Options traders took the cue, making one-month contracts to buy the U.S. dollar against the peso the most expensive since April 26 against contracts to buy the peso.

Options Pessimism Shows AMLO Isn't Winning Over Markets Quickly

The 25-delta risk reversal, which tracks the difference in volatility between call and put options on the dollar-peso pair, rose to 1.375 percentage points. That spread was heading for the biggest three-day increase since March 2017.

The options market’s reaction to Lopez Obrador’s election contrasts with its move after the victory of Recep Tayyip Erdogan in Turkey, when the risk-reversal measure tumbled to a six-week low. The lira proceeded to post the best weekly performance in emerging markets.

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