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

All the vol curves were hit pretty hard on Friday in NY but some have managed to find a footing while others, such as $A $US have failed miserably to find any real support. It’s been some time since the $A vols in the short dates have been below EUR USD.

YesterdayTodayChange
AUD/USD
1w 9.35% 8.75%-0.60%
1m 9.75%9.55% -0.20%
2m 10.30%10.05%-0.25%
3m 10.65%10.40% -0.25%
6m11.70%11.40%-0.30%

AUD vols have been really struggling for a week now, to find any kind of support. The one and two month periods looks particularly unloved. But if you look at this chart you may think there is some relative value in that part of the curve.

Daily Vols

Source: CitiFX Options – 1st chart: 1-month AUDUSD implied (blue) and 1-month EURUSD implied (red). 2nd chart: spread AUDUSD – EURUSD 1m implied

The 1 month 25 delta risk reversal has shrunk to a premium of 1.55% 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 1.0040 – 1.0360 (320 pips, 20 pips narrower than Friday’s predicted closing range for this Friday). Last Monday we predicted the spot would close between 0.9970 - 1.0330 at 10am N.Y time

Expiries 1.0100, 1.0195 & 1.0210

YesterdayTodayChange
EUR/USD
1w 9.80%9.00% -0.80%
1m 10.05% 9.80% -0.25%
2m 10.45%10.10%-0.35%
3m 10.70%10.40%-0.30%
6m 11.40%11.15% -0.25%

EUR USD vols collapsed in a weighted fashion on Friday. After the quick move back through 1.22 in the spot, there was a bit of activity but aside from that the rest of the session was relatively quiet as is today’s morning so far. Flow-wise: some good activity in calendar spreads and investors are busy rolling their bearish bets on EUR USD to longer dates.

The one week 25 delta risk reversal is now showing a 0.90% premium for EUR puts in from 0.95%.

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 1.2020 – 1.2425 (in to 405 pips from 445 and 40 pips higher than Friday’s predicted range). Last Monday we predicted the spot would close between 1.2045 - 1.2500 at 10am N.Y time

Expiries 1.2200, 1.2250, & 1.2350

EUR JPY
YesterdayTodayChange
1w 12.20%11.80% -0.40%
1m 12.80% 12.55% -0.25%
2m 13.10% 12.90%-0.20%
3m 13.60% 13.00%-0.60%
6m14.15% 13.80% -0.35%

Despite the reasonable moves in the spot market this cross is continuing to be offered in most maturities.

The one month 25 delta risk reversal is in to -1.60% from 2% last week.

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 94.45 – 98.70 (in by 20 pips to 425 pips, but almost the same as Friday’s predicted range). Last Monday we predicted the spot would close between 95.30 - 100 at 10am N.Y time

Expiries 96.75 & 97.00

YesterdayTodayChange
USD/JPY
1w 7.10%6.75%-0.35%
1m 7.50%7.40% -0.10%
2m 7.70%7.65%-0.05%
3m 8.10%8.00%-0.10%
6m 9.10%9.00%-0.10%

Holidays in Japan are not helping USDJPY vols which can’t put up any fight against gravity. 1 M is 7.4 mid, and traders are busy fighting decay in a quiet market. Investors were seen doing range plays last week.

The one month 25 delta risk reversal remains in favour of $US calls by 0.10% now.

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 78.10 – 80.10 (200 pips and slightly lower than Friday’s calculated range). Last Monday we predicted the spot would close between 78.50- 81.00 at 10am N.Y time

Expiries 78.80, 79.00, 79.10, & 80.00

YesterdayTodayChange
GBP/USD
1w 7.10%6.55%-0.55%
1m 7.35%6.90% -0.45%
2m 7.75% 7.35%-0.40%
3m 8.05%7.80%-0.25%
6m 8.85% 8.70% -0.15%

The front end of this curve has continued to fall despite there being value in buying and trading the spot against it. Perhaps the short players are happy to take that risk and only trade if the spot looks like breaking into new ground.

The one month 25 delta risk reversal has moved out a touch to -0.7% (favouring GBP 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 1.5350 – 1.5730 (into 380 pips from 410 pips and 100+ points higher than the range we calculated last Friday). Last Monday we predicted the spot would close between 1.5250 - 1.5680 at 10am N.Y time

Expiries 1.5520, 1.5580 & 1.5600

EUR/GBP
YesterdayTodayChange
1w6.30%6.05% -0.25%
1m6.75%6.60% -0.15%
2m7.10%7.00% -0.10%
3m7.45% 7.30% -0.15%
6m8.15% 8.10% -0.05%

This is an interesting market. If you look at the range we calculated last Monday you will see that EUR GBP spot is travelling close to an extreme which suggests at least buyers of downside strikes will have been making good profit on the delta trading (gamma) and yet there is still pressure to sell vol. If traders really think the spot will remain in a range then surely an 0.8000 call expiring in 1 month is worth at least 14 pips off a spot of 0.7850?

The one month 25 delta risk reversal still favours GBP calls / EUR puts by 0.60%.

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 0.7770 – 0.7950 (still only a 180 pips range but 40 pips lower than on Friday). Last Monday we predicted the spot would close between 0.7830 - 0.8040 at 10am N.Y time

Expiries 0.7800