A slightly dovish FED was not enough to support the market and market continued to trade in a risk off mode with US equities down over 2%.
USD trades stronger while EM and risk correlated currencies like AUD trades weaker. AUDUSD spot is down 2% over the last 24 hours and currently trades around the 0.7600 support.
Vols have been paid up significantly over the same timeframe with 1 month up from 9.75 to 11.00. Risk reversals moving more for AUD puts with 1 month at 1.40 for downside.
Vols have traded up to the highest level since the US election but there is still room for vols to go higher if we can break down below the 0.7600 level and the 50 days moving average at 0.7585. We see good demand to buy downside hedges but at these levels we see better value in buying put spreads or RKOs, Reverse Knock Out options, for a move 2-3% lower over the next month.
Buy 1 month 0.7600 AUDUSD put in 1 mio
Sell 1 month 0.7350 AUDUSD put in 1.5 mio
Cost 63 pips
1 month 0.7600 cost 94 pips on its own.
Buy 1 month 0.7600 AUDUSD put with RKO 0.7350
Cost 25 pips
Spot ref. 0.7600
The RKO has a knock out barrier at 0.7350. The option will be knocked out and the buyer lose the right to sell at 0.7600 if spot would trade at the barrier at any time before expiry. We offer RKOs in selected markets over voice trading, barrier options are not tradable on the platform.