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Oct 04 - 08:55 AM

EUR/USD - Downside Still Vulnerable, But There's A Cheap Hedge

By Richard Pace  —  Oct 04 - 07:04 AM
  • Option premiums for EUR puts over calls increased as EUR fell last week

  • Premiums stay firm - show options still see higher risk of EUR/USD lower

  • That can be advantageous when hedging that risk with simple barrier options

  • Outright EUR put option not cheap, but big discount with knock-out barrier

  • Example - option to sell EUR/USD at 1.1600 in a month costs $59 pips

  • Add a knock-out barrier at 1.1450 and that premium is just $8-pips

  • Holder can sell EUR/USD at 1.1600 at expiry if 1.1450 doesn't trade prior

  • Longer maturity and lower barrier would further reduce cost

  • Related comment nL1N2QW0R7

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Refinitiv IFR Research/Market Commentary


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