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Mar 20 - 08:55 AM

USD/JPY - Options Fly As Barrier And Short Gamma Risks Increase

By Richard Pace  —  Mar 20 - 07:20 AM
  • USD/JPY implied volatility is significantly higher over last 24 hours

  • Benchmark 1-month hit l-term low 6.85 after BoJ risk was priced out on Tues

  • It's now 8.1 as spot rally threatens to expose well touted short gamma

  • Difference/profit 6.85 - 8.1 vol on $30-million trade = $80,000 for straddle

  • Short gamma positioning risks fuelling more USD/JPY demand and volatility

  • Barrier options at 152.00 will increase short gamma if breached

  • Much bigger barriers and short gamma at 153.00 would then be at risk

  • Market must also be wary of any BoJ action to limit JPY weakness

  • Fed induced FX volatility risk also clearly apparent in option premiums

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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