Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
OTC Derivatives Trading
Summary: XAGUSD is up trading just below the 28.00 resistance and vols trades better bid with 1 month vol up around 5 vol over the last week. Risk premium trades around 6 vol which is the highest since the spike in February. We see good probability for a test above 28.00, covered calls or call spreads offer good value with the high risk premium and risk reversal.
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.
Vols are trading better bid over the last days as USD are trading weaker. Commodity currencies has traded stronger and XAG and XAU are among the top performers. XAGUSD has traded up just below 28.00 which has been good resistance over the last 9 months with just a few over shots. With the spike in the beginning of February was when XAG was targeted by the Reddit community. Spot has traded in a 22.00/30.00 range for 9 months with most of the time spent in the 23.00/28.00 range.
XAG vols have traded higher over the last week with 1 month up 5 vol to trade around 30 vol. Risk reversal is up 2 vol and trades at 5.50 for topside. The risk premium currently trades around 6.0 vol and is the highest we have seen since the spike in spot in the beginning of February.
We see a potential break of 28.00 and a move up to 30.00 with USD under pressure. Covered calls or call spreads offer good value with the high risk premium and high risk reversal. We like to buy ratio call spreads to take advantage of the high risk reversal and make the structure short vega.
Sell 1 month 30.00 XAGUSD call
Receive 22 pips
Alternative
Buy 1 month 28.00 XAGUSD call in 1k
Sell 1 month 30.00 XAGUSD call in 1.5k
Cost 36 pips
Spot ref.: 27.4000
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