FXO Market Update - Sep 15

Summary:  USDCNH breaks lower and vol trades higher as market is caught short gamma.


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.


  • GBP vols taking a breather as spot started the week trading higher from the lows, market is still not ready to sell-off vols yet.

FX volatility, source Bloomberg. 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
 

USDCNH has taken out the 6.82 support after better than expected Industrial production and retail sales. Spot traded sharply down from 6.81 to 6.78 today which has opened up for a move down to 6.70-6.78 area.

Vols spiked higher on the move in spot as market is caught short gamma below 6.80. 1 month up to 5.10 from 4.50 yesterday. Risk reversal has not moved and trades unchanged at 0.65 for USD calls.

6.8200 should now offer good resistance to the topside and selling UDSCNH calls offer good value with vols higher and risk reversal sill bid for topside.

  • Sell 1 months 6.8500 USDCNH call
    Receive 190 pips

Alternative

  • Sell 1 week 6.8000 USDCNH call
    Receive 100 pips

Spot ref.   6.7800



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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