FXO Market Update - Nov 2
OTC Derivatives Trading
Summary: USDMXN spot sharply higher over the last days after lower growth expectations. 1 month vol is 1.75 vol higher over the last days and risk reversals are better bid. This has made USDMXN calls considerably more expensive over the last days.
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.
USDMXN is sharply higher after lower growth number last week and fear of a hawkish FED tomorrow. Spot has traded up more than 3% over the last week and currently trades just below the October highs at 20.8400.
Vols have spiked higher over the last days with 1 month up 1.75 vol from Thursday last week, currently trades around 11.0. The spike in vol has made the risk premium to trade up to 1.75 vol over the last days. Risk reversals has followed spot and vols higher, 1 month risk reversal is up from 2.0 to 2.4 over the last days.
A more dovish FED could get some relief to EM and MXN and we could see USDMXN trade back lower. USDMXN calls are considerably higher over the last days, a 1 month 25 delta call trades at 12.50 vol which is 3 vol higher than realized spot vol.
Sell 1 month 21.50 USDMXN call
Receive 1,000 pips
Spot ref.: 20.8400
- 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:
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