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FXO Market Update - Feb 15

Mathias Alrixon

OTC Derivatives Trading

Summary:  Big risk off moves over the last days as Russia and Ukraine tensions worsen. Vols are higher across the board and we have seen big demand for JPY calls. EURJPY 1 month vol is up 2 vol to 9.0 and risk reversal trades at 2 vol for the downside.


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: EURJPY spot, Black: EURJPY 1 month vol

Big risk off move over the last days which started on Friday last week with headlines out of US saying they have intel Russia will invade Ukraine in the very near future. This spurred big sell off across all markets with big demand of heading such an event.

Vols have traded higher across the board with huge demand for JPY calls across all JPY-crosses. This has pushed EURJPY 1 month vol up over 2% to 9.0 vol, which we haven’t seen since the pandemic started in spring 2020. EURJPY risk reversal has dropped from 0.5 for downside to currently trade at 2.0 for downside, also levels we haven’t see since 2020. We see the same moves in other high beta currency pairs, AUDUSD 1 month up 1.5 vol to 10.75 and 1 month risk reversal trades 1 vol for put, 0.5 higher than last week. EURUSD risk reversals have flipped back to downside and trades 0.5 for EUR puts compared to 0.4 for calls last week.

RUB vols are as you can imagine very bid and liquidity is very bad at the moment. 1 month USDRUB is up 7.5 vol and trades around 24 vol. There has also been huge demand for CEE3 with EURPLN and EURHUF vols up 2.5 and 1.5 vol respectively.

There are a lot of risk premium priced in in the market and if you think this only is a military drill from Russia and they won’t take any military action against Ukraine then there are a lot of short selling trades out there.

Vol of vol is very high and we can see market is just waiting to sell in to the high vols. Vols dropped one to two spreads on the positive headlines yesterday of a diplomatic solution still is possible and constructive talks been held between RUS and US.

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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