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Sep 16 - 06:55 AM

GBP/USD - COMMENT-FX Options Warn GBP/USD Traders Against Complacency

By Richard Pace  —  Sep 16 - 05:25 AM

Price action in FX options - a forward looking FX derivative - can offer clues on current and expected moves in the underlying FX rate, and although it reflects the current GBP/USD consolidation, it warns dealers mustn't be complacent.

Options thrive on volatility - using implied volatility to gauge it and determine premiums.
Benchmark 1-month expiry implied volatility spiked 9.0 to 12.2 as GBP/USD plummeted last week - a dramatic gain.

It's been sold 11.1 on Wednesday as longs book profits and sellers use the higher levels to bank premium while GBP consolidates, but it's still well above those recent lows, and the highest amongst its G10 peers.

Risk reversals show implied volatility premium for GBP puts over calls (downside strikes) is barely changed since spiking significantly last week -- reflecting GBP's renewed vulnerability to a chaotic Brexit.
Those gains were accompanied by increased demand for outright GBP puts, that let holders sell GBP at lower levels. nL1N2G80EA

Overnight implied volatility now captures policy announcements from the U.S. Federal Reserve and the Bank of England -- it's high, and warns of increased actual volatility from these events. nL1N2GD07L Related items nL1N2GD086

For more click on FXBUZ


GBPUSD risk reversals Click here

Benchmark 1-month implied volatility Click here

Source:
Refinitiv IFR Research/Market Commentary

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