technical analysis technical analysis technical analysis

FXO Market Update - June 24

Mathias Alrixon

OTC Derivatives Trading

Summary:  EURHUF vols are higher as we have seen good spot moves over the last week as there were high uncertainties going in to the NBH rate decision earlier this week. 1 month vol is up from 5.25 last week to around 6.75 now. Vol has kept the bid tone after the rate decision, but we expect vol to come lower again now when spot has calmed down and vol supply start to come back to the market.

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: EURHUF spot, Black: EURHUF 1 month vol

It has been a busy last couple of days in EURHUF. Last week NBH said they might go with quarterly hikes, this had EURHUF move up from 345 to 355 as market had expected more frequent hikes. Then NBH hiked as expected this week but said we could see monthly hikes going forward and spot traded back to 350 and we are back in line with how the markets expectation looked like a week ago.

Vol has traded higher after more than a week with bigger daily spot moves than expected. 1 month vol is up from 5.25 low last week to currently trade around 6.75. We expect spot to calm down and vol to trade lower again now when the NBH event is over. It feels like the market has been taken out of a good amount of gamma and we have seen good demand to buy front end contracts after the rate decision. But spot should not be able to keep up the high volatility going forward after the market has readjusted their positions again. Vol should start trade lower from these levels as spot calms down and supply of vol comes back to the market. Risk reversals have traded lower over the last days with 1 month risk reversal now trading 0.45 for EURHUF calls, this is the lowest level in over a year. 1 month risk reversal traded at 1.0 before the rate decision.

We have a lower EURHUF bias as NBH delivered the more hawkish stance that the market originally expected. A first target is the 345-344 area, the low from earlier in June and the low from August last year.

We prefer to sell strangles or alternative buy ratio put spreads for directional trade lower.

Sell 1 month 355.00 EURHUF call
Sell 1 month 345.00 EURHUF put
Receive 175 pips


Buy 1 month 350.00 EURHUF put in 1 mio
Sell 1 month 345.00 EURHUF put in 2 mio
Cost 120 pips

You can finance the ratio put spread and sell a 355.00 call in 1 mio to make it close to zero cost.

Spot ref.: 350.20

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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