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Sep 09 - 05:55 AM

EUR/USD - COMMENT-EUR/USD Options Flag Extent Of ECB And Downside Risk

By Richard Pace  —  Sep 09 - 03:45 AM

Overnight (next day) options now expire Thursday at 10.00 a.m.
New York time, so have captured Thursday's European Central Bank policy announcement, with a big spike in implied volatility warning of the perceived potential for increased actual volatility.

Overnight implied volatility has jumped from 10.0 on Tuesday, before expiry captured ECB, to 14.5 on Wednesday.
In premium terms, holders of simple vanilla straddles must now capture 71 pips, from 49 pips in either direction before expiry, just to break-even.

Current levels of overnight implied volatility trade their highest since U.S. Federal Reserve Chairman Jerome Powell opened the Jackson Hole symposium on Aug.
27 - recall EUR/USD's range that day increased to 150 pips.

EUR/USD options are also growing more wary of deeper EUR/USD setbacks, with the recent implied volatility premium for EUR calls over puts (topside), edging lower (albeit still intact).
Risk reversal contracts highlight this falling EUR call premium - the benchmark 1-month expiry risk reversal is currently 0.25, from a recent and long term high at 0.85.

For more click on FXBUZ

1-3-12-month EUR/USD risk reversals Click here

EUR/USD overnight implied volatility - Click here

Refinitiv IFR Research/Market Commentary


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