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FXO Market Update - June 17

Mathias Alrixon

OTC Derivatives Trading

Summary:  Hawkish surprise from FED yesterday with USD up around 1.5% since the announcement. Vols trades higher and risk reversals trades better bid for USD calls across the board. We see low-cost ratio call spreads or call flies as the best value trades for long dollar positions considering spot already moved quite a bit and vols and risk reversals trades higher.

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.

FX volatility, source Saxo Bank. Vol column: At-the-money volatility for the given maturity. 1w column: Change of the at-the-money volatility for the given maturity over the last week.
Source: Bloomberg, Blue: USDCHF spot

Hawkish surprised from FED yesterday with the median dot showing two hikes at end of 2023. USD rose sharply after the FED announcement with USD index up 1%, EURUSD down 100 pips and USDCHF moved up 100 pips. The dollar continues to strengthen today and is up around 0.5% on the day. Technically USD has traded up above the 200 dma in the index as well as against most currencies.

Vols are better bid across the board with both EURUSD and USDCHF 1 month up 0.5 vol. Risk reversals moves more for USD calls with EURUSD 1 month risk reversal now trading at 0.4 for EURUSD puts, compared to 0.15 yesterday, this is the highest level in a year. USDCHF 1 month risk reversal is up 0.2 for USDCHF calls, from flat yesterday.

We see USDCHF as the better long of the two at these levels if you consider to go long USD. We think low cost ratio call spreads or call flies offer the best value trades as has spot already moved quite a bit and both vols and risk reversals are higher.

Buy 1 month 0.9150 USDCHF call in 1mio
Sell 1 month 0.9300 USDCHF call in 1.5 mio
Cost 37 pips


Buy 1 month 0.9150 USDCHF call in 1 mio
Sell 1 month 0.9250 USDCHF call in 2 mio
Buy 1 month 0.9350 USDCHF call in 1 mio
Cost 25 pips

Spot ref.: 0.9130

Source: Saxo Bank
  • The Top/Bottom charts shows the top 5 and bottom 5 values/changes for at-the-money vol, risk reversal (RR) and risk premium of the 45 currency pairs we are tracking.
  • Risk premium: Implied (Imp) minus realized volatility. A positive risk premium means implied volatility trades above realized volatility, i.e. the implied volatility can be seen as “rich”.
  • Change: The difference between current price/volatility and where it closed 1w ago.

FX Options Trading:

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.

Learn more about FX Options:

Forex Options – An introduction

Forex Options – Exotic options

Forex Options - Webinars


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