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Jan 19 - 07:55 AM

GBP/USD - Options Flag Big Shift In Directional Risk Premium

By Richard Pace  —  Jan 19 - 06:00 AM
  • Options use implied volatility to gauge actual volatility risk

  • Implied volatility holds a premium for options in a particular direction

  • GBP/USD risk reversals hold strong downside risk premium since March 2020

  • However, it's been retreating since Q4 2022 and is now lowest in a year

  • Benchmark 1-month 25D risk reversal 0.6 vs 4.0 GBP puts over calls in Sept

  • That's consistent with GBP/USD spot recovery and lesser setback fears

  • It has pressured broader GBP/USD implied volatility to cheapen options

  • Deeper setbacks can reinforce a growing conviction for more GBP/USD gains

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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