Price action in this forward-looking EUR/USD derivative is showing no sign of panic, despite EUR/USD now breaking key 1.20 barriers Thursday.
Options thrive on actual volatility - they want it to outperform implied volatility, which is a key determinant of the premium, but implied volatility remains very close to pandemic lows.
One-week expiry trades low 6s and one-month 6.0.
Last week's low was 5.7.
Risk reversals show which side of a market is considered most vulnerable by demanding a premium for option strikes in that direction.
One- to three-month expiries have flipped to their highest EUR put/USD call (downside) premium since June, but gains have faltered.
Overall price action in FX options isn't ruling out further EUR/USD losses, but while implied volatility remains low, it suggests steeper declines are expected to remain a grind.
This offers low premiums for those who want to buy downside protection, while the EUR put risk reversals premium will significantly cheapen EUR put options with an added knock-out barrier below the strike nL1N2K80VO.
Huge expiries are nearby Thursday nL1N2KA0FV.
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