FXO Market Update - Mar 01
Summary: Volatile start of the week with USDRUB trading up to 120 and EURUSD gap opened at 1.1150 of Sunday, down 100 pips from Friday close. Vols are marked higher and risk reversals are moved further in risk off direction. Realized vols have moved higher daily over the last week, EURUSD 1 month implied vol currently trades at 8.25 while 1 month realized trades at 9.0.
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 quick summary of the development in the option space over the last days.
Volatile start of the week with EURUSD gap down from 1.1275 close on Friday down to 1.1125 on Sunday opening. We saw the same risk move across the market with main selling in EUR crosses. Spot has recovered some of the move and EURUSD currently trades around 1.1200. USDRUB traded up to the area of 120 yesterday but has now traded back down to 100. 1 month USDRUB was quoted wide around 150 vol yesterday.
Vols higher in both G10 and EM, EURUSD 1 month traded up to 8.6 compared to a close at 7.10 of Friday. Risk reversals have move a lot towards the risk off side in all currency pairs with 1 month EURUSD trading from 0.6 for EURUSD puts on Friday to 1.40 today. The biggest moves have been seen in EUR crosses and CEE3 while USDJPY vols are just marginally higher. We have seen some selling of vol at the start today with EURUSD 1 month back down to 8.20 vol.
A big part of the higher vols are justified with a higher realized vol which we have seen increase daily over the last weeks and boosted by the big move yesterday. EURUSD 1 month realized vol trades at 9.0 (8.25 if we filter out the Sunday gap opening).PLN and HUF vols are both a lot higher over the last weeks. EURPLN 1 month trades at 11.5 compared to 6.0 at the end of January, EURHUF is up from 8.0 to 11.75 in the same time.
- 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 - Webinars
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.