Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Trader Strategy
OTC Derivatives Trading
Summary: USDMXN has traded higher over the last days and did another push higher yesterday as AMLO surprisingly nominated Dept FinMin Ceja as head of Banxico. Vols and risk reversals trades higher which have made USDMXN calls trade at elevated levels.
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 broke up above the 21.00 resistance earlier in the week and got another push higher yesterday after AMLO nominated Deputy FinMin Ceja and not as expected FinMin Herrera as next Banxico head. Ceja was not one of the frontrunners and not much is known about her monetary policy stance. USDMXN traded up from 21.30 to 21.60 on the announcement before falling back to 21.40 where we trade at the time of writing.
Vols have traded bid after the break higher above 21.00, with 1 month is up from 12.00 on Friday when spot was below 21.00 to 14.25 today, which is the highest level since April. 1 month risk reversal is up from 2.3 to 2.9 during the same time. The higher vol has moved the risk premium to 2.5 vol which is at the high end of the last months range.
The last days move in spot and vol has made USDMXN calls trade at elevated levels. We like to sell USDMXN calls, outright or as covered calls, alternatively buy ratio call spreads.
Sell 1 month 22.5000 USDMXN call
Receive 925 pips
Alternative
Buy 1 month 21.7500 USDMXN call in 1 mio
Sell 1 month 22.5000 USDMXN call in 2 mio
Cost 800 pips
Breakeven at 23.1700
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