Vols in G10 pairs opened lower in Asia and most curves continue to trade lower throughout the Asian session. It’s been quiet on the flows front apart from some EUR USD bearish plays through exotics and a sizeable AUD JPY digital option being shown through the brokers.
| Yesterday | Today | Change | |
| 1w | 9.95% | 9.75% | -0.20% |
| 1m | 10.40% | 10.35% | -0.05% |
| 2m | 10.65% | 10.55% | -0.10% |
| 3m | 10.90% | 11.00% | 0.10% |
| 6m | 11.85% | 11.85% | 0.00% |
AUD USD vols are relatively unchanged over the past 24 hours if not a little softer on the lack of follow-through in the spot rate. 1 Month trades at 10.20/10.50 and still captures the Aust. Employment stats. The skew is unchanged but looking more and more attractive to buy. The only problem (as always) is timing. In the very short dates, risk reversals feel bid again today as the market is still short downside short dated options.
In the brokers, a 1y 90.15 AUD JPY European Digital (spot need to be below on the expiry date) traded in $A 46 mio at 16.75% premium, which means someone has outlaid over $A 7mio on this punt!
The 1 month 25 delta risk reversal has moved out a touch further to a 1.85% 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 0.9990 – 1.0345 (355 pips, which is 5 pips narrower and a little lower than the range we predicted for next Monday)
Expiries 1.0175, 1.0200 & 1.0240,
| Yesterday | Today | Change | |
| 1w | 10.10% | 9.75% | -0.35% |
| 1m | 10.45% | 10.15% | -0.30% |
| 2m | 10.60% | 10.20% | -0.40% |
| 3m | 10.70% | 10.55% | -0.15% |
| 6m | 11.30% | 11.20% | -0.10% |
EURUSD spot still on the lows and vols not finding any strong bid: the lack of response in the option market to the lower spot has put pressure on risk reversals across the curve.
There has been a little interest today for calendar spreads as demand for short dates is dissipating. We thought spot might get stuck with so many barrier options just below and now 1 week vol is realizing 1.4% below current implieds as exotic desks provide some supply in the short dates. With these flows, the curve can only steepen: the 1Y6M spread still is around the highs of +1.00%.
Flows were mostly bearish spot again with more interest in exotics than vanillas.
The one week 25 delta risk reversal is now at a 0.90% premium for EUR puts (in by 0.1%).
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 1.2060 – 1.2500 (into 440 pips from 455 and those 15 pips have come from the lower end of yesterdays’ predicted range for next Monday).
Expiries 1.2275, 1.2300, 1.2400,
| Yesterday | Today | Change | |
| 1w | 13.30% | 13.00% | -0.30% |
| 1m | 13.10% | 13.00% | -0.10% |
| 2m | 13.20% | 13.05% | -0.15% |
| 3m | 13.35% | 13.30% | -0.05% |
| 6m | 13.90% | 13.90% | 0.00% |
This market still has plenty of bids to fill but the demand in slowly being met by traders who need to reduce holding costs. The BoJ meeting is helping the short dates.
The one month 25 delta risk reversal has moved back out and stayed at -2.05%.
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 94.95 – 99.60 (465 pips, 5 pips narrower but 40+ pips lower than yesterday’s predicted range).
Expiries 97.00 & 97.50
| Yesterday | Today | Change | |
| 1w | 8.15% | 7.90% | -0.25% |
| 1m | 8.10% | 7.95% | -0.15% |
| 2m | 8.25% | 8.05% | -0.20% |
| 3m | 8.80% | 8.50% | -0.30% |
| 6m | 9.45% | 9.40% | -0.05% |
USD JPY vols also trade soft with spot not doing much. In the gamma space, buyers of Thursday and Friday for the BoJ meeting, but we are seeing mostly sellers of the longer dates, to finance the time decay. 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 78.05 – 80.45 (in to 240 pips, but almost 50 pips lower than yesterday’s prediction) and one of the lowest ranges we seen in several weeks.
Expiries 79.00 & 79.30
| Yesterday | Today | Change | |
| 1w | 7.60% | 7.20% | -0.40% |
| 1m | 8.00% | 7.75% | -0.25% |
| 2m | 8.20% | 7.95% | -0.25% |
| 3m | 8.50% | 8.30% | -0.20% |
| 6m | 9.15% | 9.05% | -0.10% |
Spot in cable is watching the Euro & there are plenty of traders happy to sell short dated lower strikes, hence the fall in vols and the drop in the risk reversal.
The one month 25 delta risk reversal has moved in to -0.80% (favouring GBP puts) from -0.90%.
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 1.5290 – 1.57 (410 pips which is 20 narrower than Monday and almost the same range as last Friday’s prediction for this Friday).
Expiries 1.5300 & 1.5420
| Yesterday | Today | Change | |
| 1w | 7.05% | 6.80% | -0.25% |
| 1m | 7.30% | 7.15% | -0.15% |
| 2m | 7.45% | 7.30% | -0.15% |
| 3m | 7.70% | 7.60% | -0.10% |
| 6m | 8.20% | 8.15% | -0.05% |
Vol is drifting lower on the back of a stagnant spot market.
The one month 25 delta risk reversal still favours GBP calls / EUR puts by 0.60% from 0.7% which it has been stuck on for some time.
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 0.7825 – 0.8025 (again 200 pips, in by 10 pips and 20+ pips lower than yesterday’s range).
Expiries 0.7900 & 0.7920
