March 5 (Reuters) - There's been a mad scramble to buy EUR/USD volatility and topside protection via FX options in early London Wednesday, with some prices reaching their highest levels since 2020.

DTCC traded option data highlighted a market short of topside strike protection by comparison to downside strikes, a situation that has exacerbated spot gains and demand for options.

FX option implied volatility is significantly higher across the entire 1-12-month expiry term structure in the last 24 hours, with very short dated expiries leading the charge. One-week implied volatility has reached 11.0 from 8.0 early Tuesday - a new high since early February. The benchmark 1-month expiry EUR/USD implied volatility is above 9.0 from 7.8 on Tuesday - a new post U.S. presidential inauguration high.

The most significant shift in EUR/USD option pricing - and a clear indicator of changing directional risk - is unfolding in risk reversal contracts. These contracts have seen a dramatic erosion of their long-standing EUR put-over-call implied volatility premium, narrowing the gap between downside and upside strikes.

The implied volatility premium on a 1-week 25 delta risk reversal has gone from 0.5 EUR puts on Tuesday to 1.05 EUR calls on Wednesday - its highest topside strike premium since 2020. The benchmark 1-month expiry 25 delta risk reversal has totally erased its EUR put premium, having traded 0.65 EUR puts on Tuesday. The last time it traded at these levels was when it reached 0.25 EUR calls over puts in September 2024 and it hasn't traded much above there since 2020.
EUR/USD 1-week and 1-month expiry FXO implied volatility


EURUSD 1-week and 1-month expiry 25 delta risk reversals

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