FXO Market Update - Oct 20

Summary:  PLN struggle under the new wave of Covid that is rolling over Europe and new lockdown measures are expected to be put in place in Poland. EURPLN trades higher and closing in on the highs from March and vols trades bid.


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.


  • The event risk for the US election continue to be marked lower.

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

A second Covid wave rolling over Europe and CE3 has seen a surge in new cases over the last weeks. Both Hungary and Poland have not implemented as hard lockdown restrictions as other part of Europe and we expect new lockdown measures to be put in place to curb the spread.

EURPLN spot is up from 4.45 to 4.58 over the last week and closing in on the highs from March at 4.60-4.63 area.

Vols trades bid with 1 month up from 7.0 last week to currently trading at 7.7 which is the highest level since end of April. 1week currently trades at 8.0 which is just below the highest level since end of April.

We see a test of the 4.60 resistance as likely and prefer to sell short dated covered calls due to the relatively high vol or buy call spreads to reduce the premium and not buy outright calls at the currently high vol.

Sell 1 week 4.6000 EURPLN (covered) Call
Receive 125 pips

Buy 1 month 4.5900 EURPLN Call
Sell 1 month 4.6500 EURPLN Call
Cost 232 pips
The 4.5900 cost 412 pips on its own.

Spot ref.: 4.5850




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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