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Jan 08 - 03:55 AM

EUR/USD - Options Show It Might Be Prudent To Protect Downside

By Richard Pace  —  Jan 08 - 02:35 AM
  • EUR/USD market is short USD, deeper declines may force more to cover

  • The premium that options charge to own EUR calls (topside) is falling

  • 1-week risk reversals now neutral from 0.4 EUR calls over puts on Monday

  • 1-month risk reversals have fallen back to 0.175 from 0.4 EUR calls

  • Implied volatility (determines premium) lower - 1-month 6.55 from 7.1

  • Downside protection relatively inexpensive for now, worth considering

  • 1-month 1.20 EUR puts cost $18 pips - would increase in value if spot falls

  • Option allows owner to sell EUR/USD at 1.20 at expiry, should spot be lower



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

Source:
Refinitiv IFR Research/Market Commentary

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