technical analysis technical analysis technical analysis

FXO Market Update - Sep 22

Mathias Alrixon

OTC Derivatives Trading

Summary:  USDJPY has continued to grind lower after the break of 105.00 last week. In this FXO market update we will look at different options strategies that benefit from a continued move lower in USDJPY spot.

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.

  • Market started the week in risk off mode with equities lower and USD higher. EM got hit hard yesterday with high betas like ZAR and MXN getting hit the hardest. USDZAR spot up 3.5% yesterday and 1 month vol up from 16.25 to 18.50.

FX volatility, source Bloomberg. 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

USDJPY continue to trade lower after the break of 105.00 last week. Spot touched 104 yesterday before retracing back up to current levels around 104.50.

Vols continues to trade higher and 1 month traded above 7.0 when spot was down at 104.00 yesterday. We open a touch lower today as spot has moved away from the lows, 1 month currently trades around 6.85, while it traded at 5.85 before the break of 105.00 last week. Risk reversals trades relative stable with 1 month at 1.25 for puts.

The curve trades very steep like all USD pairs due to the US election in November. 2 months tenor, which covers the election, trades significantly higher then the front end of the curve. 2 months trades at 9.4, 2.55 vol above the 1 month.

Market is long gamma on the downside from barriers, where the main bulk of gamma comes from barriers in the 103-101 area. Barrier options gives the market a lot of gamma when spot trades close to the barrier, especially when close to expiry. The option ceases to exist when the barrier gets hit and the supply of long gamma disappear. The barriers will add extra support to spot when moving lower as the market makers must hedge the gamma by buying spot on any move lower in spot.

We will take a look at a couple of different strategies which benefit from a move lower in spot and looking at the 3 months tenor as most strategies are short vega and the 3 month offer significantly higher vol than the 1 month or shorter. Also, when looking at the barrier options we want to have the barrier below 101.00. Buying too short barrier option would not offer enough discount to the equivalent vanilla when adding barriers below 101.00


Vanilla put option
Buy 3 months 104.00 USDJPY put
Cost 170 pips

Ratio put spread
Buy 3 months 104.00 USDJPY put in 1 mio
Sell 3 months 100.00 USDJPY put in 1.5 mio
Cost 76 pips

Put Fly
Buy 3 months 104.00 USDJPY put in 1 mio
Sell 3 months 100.00 USDJPY put in 2 mio
Buy 3 months 96.00 USDJPY put in 1 mio
Cost 72 pips

Reverse Kock-Out
Buy 3 months 104.00 USDPY put with RKO 100.00
Cost 21 pips

Reverse Knock-Out
Buy 3 months 104.00 USDJPY put with RKO 99.00
Cost 32 pips

Spot ref. 104.60

The ratio put spread is the only strategy that offers risk on the downside as you are selling more of the 100.00 put. This ratio offers a good reduction of the total premium, total cost less than 50% of 104.00 put, and breakeven is as far down as 92.72.

The put fly offer same pay-out profile as the ratio put spread down to 100.00 while it is a bit worse off between 100.00 and 96.00 as it has a higher ratio of the 100.00 strike. On the other hand it has no risk to the downside as the bought 96 strike cut any potential losses, except the premium paid, and it cost a touch less than the ratio put spread.

The RKO options offer great discount to the vanilla where the 104.00 put with 100.00 knock-out cost only 12% of the vanilla. Downside is that the option gets knocked out if spot trades down at 100.00 before expiry.

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


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.