• A wealth of USD/JPY exotic options - barriers and triggers from 160.00 - are set to expire next week

• The market is consequently awash with related gamma - evidenced by tight FX ranges and low implied volatility

• USD/JPY FX option implied volatility trades its lowest levels in 4-years - benchmark 1-month expiry just 6.3

• Yet below the surface calm, low delta strike premiums have been increasing - a warning sign that many might miss

• Butterfly spreads, which measure low-delta wing premiums relative to ATM implied volatility, have stretched to extremes

• One-week expiry 10 delta butterfly spread trades 2.4 - the highest level in 6-years - flagging a market wary of sharp moves

• Owning these options would benefit holders if USD/JPY were to break-out and volatility spiked

• If those 160.00 barriers are taken out before expiry, that's exactly what could happen
USD/JPY FX option implied volatility


USD/JPY 1-week expiry 10 delta butterfly spread


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