FXO Market Update - Feb 22 FXO Market Update - Feb 22 FXO Market Update - Feb 22

FXO Market Update - Feb 22

Summary:  Market still nervous and all eyes on the Russia/Ukraine situation. Vols trades bid and there are high risk premium in EM and JPY vols while there are some currency pairs that looks cheap at these 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.

FX volatility, source Saxo Bank. 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, Blue: EURSEK spot, Black: EURSEK risk premium

Russia/Ukraine situation still the main focus that drives the market and the market still trades very nervous and headline dependent. FX spot still not doing much except RUB of course that is 7% weaker compared to start of the year and have been trading volatile in a 10% range during the first two months of the year. 1 month RUB vol currently trades around 40 vol compared to 15 at the start of the year and risk reversals trades around 12 vol when it normally trades below 4 vol. Spot moves have picked up a lot but realized is still only just above 20 vol so there is a huge risk premium at the moment.

G10 vols continue to trade bid even is spot not doing much. JPY vols and risk reversals are bid and trades with a considerable risk premium. Other high beta like AUD and NZD still trads bid but both trades close to fair value, implied and realized vol about the same.

Notable is other high beta like NOK and SEK trades below realized vol. EURSEK 1 month currently at 8.0 vol while realized at 9.75 vol. It has traded with a negative risk premium since beginning of December when spot started to trade higher. EURSEK spot trades close to the highest level in over a year and sit at interesting technical levels. A break above the resistance could accelerate the move higher while spot can quickly trade down to 10.20 if we get a risk on market again.

We like to buy EURSEK options here and sell USDJPY options to finance it.

Buy 1 month EURSEK 10.6000 put or call
Cost 950 pips

Sell 1 month USDJPY 116.00 call
Receive 50 pips

Spot ref.: 10.5950 and 115.25

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.

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