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Feb 13 - 02:36 PM

EUR/USD - COMMENT-FX Options Hike Risk Premiums For Deeper EUR/USD Drop

By Richard Pace  —  Feb 13 - 01:10 PM

The break of 1.0850 was hard fought, but it's proved the catalyst to properly awaken the FX options market, which now seems to be taking the risk of deeper EUR/USD declines more seriously, no doubt worried by the lack of existing positioning nL1N2AB058.
In the binary options market, the cost to bet on EUR/USD touching 1.07 within the next month has almost equal odds to it regaining 1.1000 - a huge repricing in the 1.07's favour since the barriers were erased nL1N2AD0A0.
Risk reversals, which show the implied volatility premium for option strikes in one direction versus the other, have completely lost their EUR call (topside) volatility premium out to 3-month now.
One-month 25 delta risk reversals trade their highest EUR put volatility premium since September, at 0.2 from a 2-year highs for EUR calls at 0.5 last week.
Implied volatility continues to edge higher too -- The benchmark 1-month contract at 4.6 is now 0.85 above last weeks record low.
Overnight expiry implied vol has dipped below 6.0, which looks good value at just 27 pips for a straddle over Friday's key German and EZ GDP data nL1N2AD07D.

EUR/USD risk reversals: Click here

Refinitiv IFR Research/Market Commentary


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