FXO Market Update - Mar 17

Market continue to trade in risk on mode and equity market rallied on the FED hike yesterday as FED wasn’t as hawkish as the market had feared. China equities rebounded after China state council vowed to keep the stock market stable earlier in the week. Talks between Ukraine and Russia continues and it looks like some progress are made.

Vols are continue to drift lower with EURUSD 1 month down to 8.0 and 1 month risk reversal trades at 1.25 for puts. USDCNH vols have erased all the gains from the start of the week, 1 month peaked at 4.80 and is now back to 3.50. USDCNH risk reversals has not adjusted as much with 1 month trading at 0.75 compared to 1.0 highs earlier in the week. HUF and PLN vols has been market lower over the last days with both EURPLN and EURHUF 1 month down 2 vol yesterday. Vols still at historically high levels with both 1 months at 13.5 while they normally trades between 6-8 vol.

Realized vol is still holding up as we still see quite big moves in spot. When looking at 1w realized, so we don’t include the volatile start of Russia's invasion of Ukraine. EURUSD 1 week realized is 11.25, 3 vol above 1 month implied. EURHUF and EURPLN both around 13.5 which is same as 1 month implied.

• 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