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Feb 13 - 08:36 AM

EUR/USD - COMMENT-EUR/USD 1.10 Much More Likely Than 1.07 - According To Options

By Richard Pace  —  Feb 13 - 06:45 AM

Binary one-touch options pay a fixed sum if EUR/USD hits a predetermined level, and owners can get a much better return if it hits 1.0700 rather than 1.1000 at the moment.
That looks attractive, given the proximity a key Fibo nL1N2AD05Y and big 1.0850 barrier options, which should prompt downside covering if breached.
What's concerning is a lack of existing option positioning below 1.0850, which could fuel steeper declines nL1N2AB058.
Betting on EUR/USD touching 1.0700 within the next month currently costs 20% of the total return, according to pricing models.
In other words, pay 200,000 euros to get 1 million.
For EUR/USD to touch 1.1000 within the next month, the premium is 42%, so the initial outlay to get a 1 million-euro return would be 420,000 euros - not so attractive.
That pricing also reinforces the view that options aren't yet convinced that EUR/USD will go much lower nL1N2AD05L.
Friday's German GDP is a risk to the downside that's not looking expensive to protect either nL1N2AD07D


EURUSD option positions DTCC data: Click here

Source:
Refinitiv IFR Research/Market Commentary

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