Summary: Market still very sensitive to any headlines regarding the Russia/Ukraine situation. We have seen a bit of risk on over the last days with vols and skew lower but new negative headlines this morning had vols trade higher again.
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.
A little bit of risk on over the last days with vols coming in from the highs at the start of the week. JPY vols and skew has come lower with EURJPY 1 month down around 1 vol from Monday and 1 month risk reversal trades at 1.6 compared to 2.0 on Monday.
Market still very sensitive to any headlines and we wont see the big sell off before US or NATO confirms Russia has started to move back troops to their bases. Vol trades higher today after headlines overnight that the Russian backed separatists in eastern Ukraine and Ukraine forces violated the cease-fire rules.
EURUSD 1month vol up 0.25 form yesterday and 1 month is almost up the highs from earlier in the week while JPY vols have not done the same catch up. Spot is not moving much and it is all priced as risk premium. 2 week EURUSD risk premium is just above 2 vol which is the highest level in over a year. Just note 1 month risk premium in the graph below doesn’t show the same picture as the realized vol for 1 month include the big move from 1.1150 to 1.1450, which was rate related.
We like to sell in to the higher EURUSD vol and think strangle offer good value as the butterfly also trades higher.
Sell 1 month 1.1500 EURUSD call
Sell 1 month 1.1200 EURUSD put
Receive 70 pips
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