FXO Market Update - Mar 08 FXO Market Update - Mar 08 FXO Market Update - Mar 08

FXO Market Update - Mar 08

Mathias Alrixon

OTC Derivatives Trading

Summary:  Vol continue to trade higher with EUR and CEE3 vol in high demand. EURUSD 1 month traded up to 12.6 yesterday with spot on the lows. Both EURHUF and EURPLN vols trades around 19.0 vol as spot printing new highs every day in a very illiquid market. Vol trades with a high risk premium with only Scandie crosses trading at fair value.

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, 1 month vol, Blue: EURUSD, Black: AUDUSD, Green: EURPLN, Yellow: EURHUF, Red: XAUUSD

We continue to see vols trade higher with EUR and CEE3 vols in great demand. Vol of vol is extremely high for G10, both for ATM vol and the skew. Any new lows in EUR or negative headlines makes vol and risk reversals spike higher. EURUSD vols makes new highs for every new low print in spot. We see the same aggressive move lower in vol as soon as spot moves away from the lows. EURUSD 1 month is generally marked 1 vol lower if spot moves 100 pips up from the lows. EURUSD 1 month traded up to 12.6 yesterday with spot on the lows, up almost 2 vol from Friday close. Today 1 month has traded back to 12.0 as spot has moved higher. Vols are closing in on the highs from March 2020 and the peak of the Covid crisis when EURUSD 1 month traded up to 15.50 high.

So far we haven’t seen any attempt to sell CEE3 vols which are trading higher for every day as spot under pressure. Both EURPLN and EURHUF 1 month trades around 19.0 vol, compared to 6.0 and 8.0 at the start of Feb.

Also important to note is that we don’t see the typical risk off moves that we normally see. AUD usually get sold off in a risk off scenario and trades with a high correlation to the stock market. This is not the case now with AUDUSD trading higher over the last month, supported by higher commodities. AUD vols still trading higher as market in risk off but spot is not close to realize the same as the high implied vol and AUDUSD risk premium is 1.5 vol.

XAU spot is trading higher as you could expect in a market like this and vols are trading higher. 1 month XAUUSD trades at 27.50 compared to 13.0 at start of February. XAG spot is trading higher as well but not as aggressive as XAU and still trades within last year’s range, XAG 1 month trades at 40.0 compared to 26.0 a month ago. Both XAU and XAG vol trades with a risk premium of just above 10 vol.

Even if the RUB market is close to non-existing it is still trading some option contracts from time to time in the interbank market. Last we seen was USDRUB 1 month at 105/145 yesterday.

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 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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 (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.