Demand for options that protect against a drop in the euro versus the U.S. currency is at the highest level in more than a year as the European Union struggles to contain the sovereign-debt crisis. The premium for euro three-month put options granting the right to sell the currency against the greenback reached 2.58 percentage points today over calls, which allow for purchases. That’s the most since June 2010 on an intraday basis. Investors are either betting the euro will decline or want to protect their positions over the next three months, when “liquidity will be less, but nevertheless there could be some nasty moves,” according to Neil Jones, head of European hedge- fund sales at Mizuho Financial Group Inc. “The euro will continue to run into problems,” said Jones in a telephone interview from London. “People express that view through options by buying down-side strikes. It’s just to purely express a euro-bearish view if you don’t believe that euro-land will manage to find a clear solution.” The 17-nation currency dropped as much as 2 percent to $1.4156, its lowest level this month, after European Union talks on achieving a second bailout for Greece to prevent the first euro-area default stalled. Greece’s Prime Minister George Papandreou said he will make changes to his Cabinet tomorrow and will then immediately seek a vote of confidence in Parliament. He spoke in comments televised live on state-run NET TV. Risk-Reversal Drop The premium for puts rose for a sixth consecutive day, in the biggest intraday increase in more than a year. It had been as small as a 1.16 percentage point on Jan. 14. An increase in euro-dollar put buying may also mean investors are hedging their holdings, according to Jones. “At the very least there’s protection on spot positions,” he said. “The market, to an extent, positioned long the euro because there’s also a fairly overwhelming dollar bearishness, and if one wants to express that, it’s through a long-euro position, short-dollar position.” A long is a bet a security will increase, while a short position is a bet it will drop. Implied volatility for one-week euro-U.S. dollar options climbed 3.18 percentage points, the biggest jump since May 2010, to 13.87 percent. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency. To contact the reporter on this story: Cecile Vannucci in New York at cvannucci1@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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