FX Options Insights 04/09/24
The JPY call over put skew and JPY-related implied volatility are being driven higher by risk aversion and JPY increases. This week's USD/JPY 1-month expiration implied volatility increased from 11.9 to 12.9, and the 1-month 25 delta risk reversals gained 2.0 vol premium for downside strikes from 1.6 vol premium. Flows have been dominated by JPY call buying, with 140.00 being a common strike. The significant event risk premium being associated to this data is highlighted by the implied volatility for options expiring following Friday's US jobs data, which is significantly higher than its realized volatility and fair value metrics.
The mid 1.10s see relatively narrow fluctuations for EUR/USD, partly due to a lengthy gamma condition. Pre-Friday expiry sales contribute to the traffic jam. Options for post-NPP expiry are supported by pre-data: 1-week options are little changed in the low- to mid-7s, while 1-month options edge to 6.15 following Tuesday's transaction of one billion euros at 6.275.
This week, the 1-month implied volatility for the AUD/USD pair increased to 10.0 from 9.15 as demand before 0.6700 was met by the spot decline from 0.6800.
The implied volatility for the USD/CHF 2-month expiry is trailing the actual volatility, and there is still a significant negative strike premium for risk reversals. Due to their belief that CHF does not reflect dovish SNB repricing, Societe Generale finds the two-month 0.8730 CHF puts/USD calls to be an appealing option.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!