FX Options Insights 4/12/24
EUR/USD's near-term expiry FX option implied volatility is facing downward pressure. Overnight, selling was observed at 11.5, with 1-week selling between 10.0 and 9.5, while the 1-month implied volatility dropped to 8.15 from 8.8 on Tuesday. These sales of implied volatility suggest a decrease in both actual volatility and expectations for the near term. There are notable FX option strike expiries clustered around 1.0500, which provide support for the spot price. Risk reversals indicate that while EUR/USD is somewhat vulnerable to downside movements, the risk is less pronounced in the near term. Significant option barriers are positioned at 1.0300, which may present a considerable challenge to overcome.
Near-term expiry USD/JPY implied volatility reached new highs since the US election. While the spot price declined, this increased demand, although the setbacks were not significant, especially with the recent recovery in spot prices. Cash-settled hedged FX options benefit from FX volatility, regardless of the market direction. Past realised volatility serves as a reliable benchmark for assessing implied volatility. Recently, historical volatility has been trending upward, which supports the implied volatility levels. Option traders are actively seeking FX volatility protection in anticipation of the upcoming Fed and BoJ meetings.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
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!