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Feb 12 - 07:24 AM

EUR/USD - COMMENT-FX Options Not Convinced EUR/USD Will Drop

By Richard Pace  —  Feb 12 - 05:40 AM

The forward-looking nature of EUR/USD options offers clues on how FX traders view the increased risk of spot breaking its two-and-a-half-year range base at 1.0879 and extending its losses.
Right now, they don't look convinced.
That's despite a lack of existing option positions below 1.0850, meaning deeper EUR/USD losses could be fuelled by a lack of related option demand/liquidity nL1N2AB058.
Implied volatility, which determine the price of options, is indeed higher, but only marginally above recent and record lows and already off it's peak.
Risk reversals show any implied volatility premium for strikes in one direction over the other, and although the one-month contact has pared its EUR call over put (upside) premium, it's yet to ask premium for downside protection.
Huge option barriers at 1.0875-50 are sure to be playing a part - defended by those who are set to receive pre-determined pay-outs if the levels hold, reinforcing support.
However, those worried about an eventual breach can still buy EUR put options relatively cheaply nL1N2AA06M.
Huge vanilla option expiry today nL1N2AC06F


EUR/USD implied vol: Click here

EURUSD risk reversal: Click here

Source:
Refinitiv IFR Research/Market Commentary

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