OTC Derivatives Trading
Summary: USD trades under pressure and EURUSD has traded up above the 1.2000 resistance which opens for a move to 1.2350. We have seen good demand to buy USD put strategies in most USD pairs and today we will look at what bullish EURUSD strategies you can buy if spending 50 pips in the 1 month.
Saxo Bank publishes two weekly FX Options Market Update reports covering changes and updates on the FX Options and FX Volatility market. They describe changes in FX volatility levels, risk premium and ideas how to trade based on these.
USD continue to trade under pressure as rates volatility has come lower as US rates has topped out and been range trading for the last weeks. USD was sold of against all G10 currencies yesterday and EURUSD took out the 1.2000 resistance and traded up to current levels around 1.2070.
We have seen good demand to buy USD put options in most USD pairs which has moved ATM vols higher and risk reversal to move more in favor for USD puts. 1 month EURUSD has moved up from 5.45, which was 1 year low, on Friday to trade at 6.0 at the time of writing. EURUSD 1 month risk reversal trades at 0.2 for EURUSD calls, up 0.1 from Friday.
Now when the 1.2000 resistance is taken out and USD has built up some momentum the next target is the highs from the start of the year at 1.2350.
Today we will look at what different bullish EURUSD strategies you can get if spending around 50 pips in the 1 month.
Buy 1 month 1.2160 EURUSD call
Cost 50 pips
Buy 1 month 1.2120 EURUSD call
Sell 1 month 1.2320 EURUSD call
Cost 51 pips
Buy 1 month 1.2100 EURUSD call in 1 mio
Sell 1 month 1.2340 EURUSD call in 2 mio
Cost 50 pips
Buy 1 month 1.2070 EURUSD call with knock-out at 1.2385.
Cost 49 pips
Buy 1 month 1.2100 EURUSD call
Sell 1 month 1.1925 EURUSD put
Cost 47 pips
Spot ref.: 1.2070
You should be aware that in purchasing Foreign Exchange Options, your potential loss will be the amount of the premium paid for the option, plus any fees or transaction charges that are applicable, should the option not achieve its strike price on the expiry date
If you write an option, the risk involved is considerably higher than buying an option. You may be liable for margin to maintain your position and a loss may be sustained well in excess of the premium received.
By writing an option, you accept a legal obligation to purchase or sell the underlying asset if the option is exercised against you; however far the market price has moved away from the strike. If you already own the underlying asset that you have contracted to sell, your risk will be limited.
If you do not own the underlying asset the risk can be unlimited. Only experienced persons should contemplate writing uncovered options, then only after securing full detail of the applicable conditions and potential risk exposure.
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Forex Options – Exotic options
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