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FXO Market Update - NOK set to move higher

Mathias Alrixon

OTC Derivatives Trading

Summary:  EU has agreed on a ban of Russian oil delivered by boat, which account for 2/3 of the imports. Oil push higher and a higher oil price should benefit NOK. EURNOK trades at relative high levels at 10.1300 compared 9.6000 in April. EURNOK 1 month vol is down 3 vol to 10.25 over the last two weeks while risk reversals still trades on the highs, bid for topside. EURNOK puts 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: EURNOK spot, Black: Brent spot, Red: EURNOK 1 month vol

EU has agreed on the next sanctions package against Russia including a ban on imports of Russian oil delivered by boat, pipelines are a carve-out. This is around 2/3 of the EU imports.

Brent trades higher and has taken out the 123.75 highs from 24 March, next levels are 139.10 intraday-highs from beginning of March and then all-time-high at 147.50 from 2008. Higher oil price should benefit NOK which still trades relative weak against EUR around 10.1300. A push higher in oil and the improving risk sentiment we have seen over the last week could take EURNOK back down to 9.6000 again, levels spot traded at just 6 weeks ago.

EURNOK vols have traded sharply lower over the last weeks with 1 month down from 13.25 two weeks ago to now trade at 10.25. EURNOK 1 month risk reversal trades at the highs at 1.50 favor EURNOK calls, the high over last year was 1.80 back in December.

The selloff in vol and the high risk reversal makes EURNOK puts look cheap.

Buy 1 month 10.0000 EURNOK put
Cost 625 pips

Alternative

Buy 1 month 9.8000 EURNOK put
Cost 190 pips

Spot ref.: 10.1300

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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