Options Traders Less Pessimistic on Israeli Shekel as Gaza Ceasefire Takes Hold

Options traders are showing the least pessimism towards the Israeli shekel in three years, as a ceasefire between Israel and Hamas in Gaza has raised hopes for economic stability, Bloomberg reports.

The shekel’s three-month risk reversals, a measure of the cost of bearish versus bullish bets, have tightened to their strongest level against the US dollar since 2021. While bearish bets on the shekel still remain more expensive than bullish ones, the gap between them has significantly narrowed. This shift signals an improved outlook for the shekel compared to most other major currencies tracked by Bloomberg.

The recent optimism is further reflected in the rally of Israeli bonds and stocks since November, coinciding with a separate ceasefire between Israel and Hezbollah, an Iran-backed militia based in Lebanon. Investors are hopeful that the current pause in fighting on both fronts will provide much-needed relief to the Israeli economy, which has been strained by conflict over the past 15 months, and contribute to calming broader tensions in the Middle East.

However, the current situation is not without risk. The ceasefire with Hezbollah is set to expire within a week, and while an extension is possible, neither party has confirmed its renewal.