Daily vols for Europe

Options update for the European opening – what happened in the professional market.

Options prices in most crosses were hammered over the weekend, but they have subsequently found some support in Asia. I think this is because realised volatilities have risen with the latest spot moves and only the “risk-on” push higher in spot levels and the necessity to cut carrying costs (theta) have put pressure on option prices. Front-end vols are actually good value when you consider the volatility of spot over the past week.

Most of the pullback in options prices in the $A happened on Friday and while there has been a further push lower in the one week & two month expiries, the other terms have found a bit of a base for the time being. If spot holds up above 1.0200 we could see the front end move considerably lower, remembering one month vols got down to 8ish% in April when the spot ground out a range between 1.2050 & 1.0450.

The one week picks up a huge bout of data, with RBA, China PMI and NFP all included. Most requests are still for bearish plays and we heard some hedging of investor flows this morning with activity primarily in the front end.

The 1 month 25 delta risk reversal has moved out a touch to a 2.0% premium for $A puts.

If we look at the one week volatility and add the risk reversals & 25 delta butterflies (skew) we can estimate the range within which we expect the spot to close in 7 days time with an 80% confidence level. The range today is 1.0025 – 1.0400 (375 pips which is slightly narrower than Friday and 40-50 pips higher). Last Monday we predicted that the spot would close today within a range of 0.9790 – 1.0180 which, admittedly, is looking a little dicey at this stage.

Expiries 1.0130, 1.0200 & 1.030.

Option prices in the UER USD took a hammering on Friday as you can see from the table above, but they too have managed to stabilise during the Asian trading session. We should see some demand for Thursday’s options with ECB and also Friday’s with NFP. There were many sellers of options to finish the week, cutting time decay or unwinding long option positions. We also saw a few sellers in the 1 -2 month period, closing bearish positions.

The one week 25 delta risk reversal is now at 1.60% in favour of EUR puts which is 0.35% wider than Friday, so while options vols are offered the merest hint of a move back down in spot will bring back demand for protection.

If we look at the one week volatility and add the risk reversals & 25 delta butterflies (skew) we can estimate the range within which we expect the spot to close in 7 days time with an 80% confidence level. The range today is 1.2390 - 1.2880 (back in to 490 pips from 560 and the range is now 100 pips higher than Friday’s). Last Monday we predicted that the spot would close today within a range of 1.2240 – 1.2740 which looks a little safer.

Expiries 1.2500, 1.2700, & 1.2750.

Vols were hit hard on Friday when all threat of a collapse in spot quickly disappeared. But the spot has lost a bit of ground in Asia & this has brought some buying back particularly in the one and three month area

The one month 25 delta risk reversal which is now at -1.95% which is in by 0.20% from yesterday.   If we look at the one week volatility and add the risk reversals & 25 delta butterflies (skew) we can estimate the range within which we expect the spot to close in 7 days time with an 80% confidence level. The range today is 98.10 – 102.95 (485 pips in from 500 pips, and a further 70 pips higher than Friday). Last Monday we predicted that the spot would close today within a range of 97.50 – 102.40 which also looks relatively safe.

Expiries 100.50, 100.80 & 102.0.

The USD JPY spot price remains trapped in a very tight range which continues to impact on the short end of this curve. Japanese corporate remain on the offer in both the spot and options so we are going to need to see something significant in order for the options market to break from this slumber.

The one month 25 delta risk reversal remains in favour of $US calls at 0.15%.

If we look at the one week volatility and add the risk reversals & 25 delta butterflies (skew) we can estimate the range within which we expect the spot to close in 7 days time with an 80% confidence level. The range today is 78.50 – 81.00 (250 pips, which is 20 pips narrower but still almost the same range as most of last week). Last Monday we predicted that the spot would close today within a range of 78.90 – 81.40 which looks pretty safe.

Expiries 79.50, 79.60, 79.75 & 80.0.

Once again most of the hit to options prices in Cable happened prior to the weekend and Asia has just done some housekeeping which has left most tenors close to their opening levels.

The one month 25 delta risk reversal which has come in further to -1.05% (favouring GBP puts), which is flat from yesterday.

If we look at the one week volatility and add the risk reversals & 25 delta butterflies (skew) we can estimate the range within which we expect the spot to close in 7 days time with an 80% confidence level. The range today is 1.5435 - 1.5900 (465 pips, which is substantially narrower than Fridays range but all the reduction has come from the lower end). Last Monday we predicted that the spot would close today within a range of 1.5320 – 1.5780 which is probably safe.

Expiries 1.5600 & 1.5700.

Noting of any real value to report here, vols are offered but we are seeing some bids creep back in. The one month 25 delta risk reversal still favours GBP calls / EUR puts by 0.70%.

If we look at the one week volatility and add the risk reversals & 25 delta butterflies (skew) we can estimate the range within which we expect the spot to close in 7 days time with an 80% confidence level. The range today is 0.7950 – 0.8170 (220 pips which is 20 pips narrower than Friday and 20 pips higher). Last Monday we predicted that the spot would close today within a range of 0.7920 – 0.8130 which looks pretty safe too.

Expiries 0.8050.