• Overnight expiry options now include Wednesday's US CPI data - arguably more important after Fri's NFP surprise

• However, overnight expiry USD/JPY implied volatility has traded below 6.0 - remarkably cheap for any event risk of late

• Premium/break-even for a straddle just 40 JPY pips in either direction - already low pre NFP at 53 JPY pips

• USD/JPY is well contained at 160.00 as intervention threat caps, but this premium still looks notably underpriced

• Dealers point to long gamma from more expiring trigger type options in the mid 160.00's as the likely culprit

• Long gamma typically pressures near dated implied volatility and helps to suppress realised volatility

• With vol this cheap, it wouldn't take much realised volatility to reward option holders hedging CPI data risk
Overnight expiry USD/JPY FXO implied volatility


(Richard Pace is a Reuters market analyst. The views expressed are his own)