Options update for the Asian opening – what happened in the professional market.
Most of the volatility curves actually bounced from London’s opening which is a turnaround from the past week or so. It seems that as in the spot market, traders are not willing to hold large positions so the market is thinnish & being buffeted by any significant flows from underlying customers. In the meantime some traders have been examining the balance of the skews on their books and this is perhaps why we have seen such big moves in the risk reversals. Two week expiry now covers the ECB & FOMC so we should see some support in those dates.
| Yesterdy | Today | Change | |
| 1w | 8.20% | 8.60% | 0.40% |
| 1m | 9.00% | 9.00% | 0.00% |
| 2m | 9.50% | 9.55% | 0.05% |
| 3m | 10.00% | 10.05% | 0.05% |
| 6m | 11.10% | 11.00% | -0.10% |
If the $A manages to hold above 1.0400 we may see the vol curve shift a notch further down to levels we last saw in April. However, the risk reversal is moving in so even if the spot moves back below 1.04 I doubt we will see too much of a spike higher in vols.
The 1 month 25 delta risk reversal has fallen significantly and now sits at a 0.85% premium for $A puts in from 1.45% on Wednesday. This exemplifies the almost complete lack of fear in the currency markets right 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 1.0250 – 1.0575 (out to 325 pips and 70 pips higher again than yesterday’s calculated range).
Expiries: 1.0350, 1.0380 & 1.0440
| Yesterdy | Today | Change | |
| 1w | 8.70% | 8.70% | 0.00% |
| 1m | 9.20% | 9.05% | -0.15% |
| 2m | 9.50% | 9.45% | -0.05% |
| 3m | 9.80% | 9.80% | 0.00% |
| 6m | 10.60% | 10.50% | -0.10% |
EUR USD vols were hit pretty hard yesterday so it looks like we have had some profit takers in during the London session which has helped bring the curve off its recent lows. There is still demand for lower strikes but not to the degree we were seeing a few weeks ago.
The one month 25 delta risk reversal has moved in significantly also and now sits at only -0.30% (ie. favouring EUR 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 1.2080 – 1.2480 (back in to 400 pips from 390 pips & those 10 pips have been added to the top of yesterday’s calculated range).
Expiries: 1.2230 & 1.2260
| Yesterdy | Today | Change | |
| 1w | 10.70% | 10.40% | -0.30% |
| 1m | 11.25% | 11.20% | -0.05% |
| 2m | 11.75% | 11.70% | -0.05% |
| 3m | 12.30% | 12.15% | -0.15% |
| 6m | 13.10% | 13.00% | -0.10% |
The spot in EUR JPY just appears to be drifting lower with little malice so it’s no surprise that the vol curve has been under pressure. There are still offers to sell options if there is a bounce so look for this pair to remain subdued for a few days more.
The 25 delta risk reversal has moved out this time to -1.75% from 1.5%.
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 94.50 – 98.30 (380 pips which is 10 pips narrower than yesterday & 20+ pips lower).
Expiries: 96.20 & 96.40
| Yesterdy | Today | Change | |
| 1w | 6.20% | 6.50% | 0.30% |
| 1m | 6.90% | 7.00% | 0.10% |
| 2m | 7.25% | 7.505% | 0.25% |
| 3m | 7.65% | 7.80% | 0.15% |
| 6m | 8.50% | 8.65% | 0.15% |
USD JPY options found some legs yesterday in Asia and they have almost managed to hold onto all of those gains. Perhaps the Japanese corporates have finished most of their hedging?
The USD JPY 25 delta risk reversal remains in favour of USD calls by 0.10%.
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 77.70 – 79.60 (out to 190 points now and 10+ pips lower than yesterday’s calculation for next Thursday).
Expiries: 78.50 & 78.60
| Yesterdy | Today | Change | |
| 1w | 6.50% | 6.60% | 0.10% |
| 1m | 6.75% | 6.70% | -0.05% |
| 2m | 7.10% | 7.15% | 0.05% |
| 3m | 7.55% | 7.50% | -0.05% |
| 6m | 8.55% | 8.40% | -0.15% |
There was not a lot going on in this pair overnight but vols have managed to hold on and there may be some activity if the spot rate can stay above 1.5700.
The 25 delta risk reversal is now sitting at a 0.30% premium for Cable puts in from 0.55%.
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 1.5525 – 1.5910 (out by 5 pips to 385 pips and 70+ point higher than yesterday’s range).
Expiries: 1.5640, & 1.5700
| Yesterdy | Today | Change | |
| 1w | 5.95% | 5.85% | -0.10% |
| 1m | 6.35% | 6.15% | -0.20% |
| 2m | 6.70% | 6.60% | -0.10% |
| 3m | 7.15% | 6.95% | -0.20% |
| 6m | 7.90% | 7.65% | -0.25% |
Vols are still drifting lower in this cross and that is no real surprise considering the lack of movement in the spot market.
The one month 25 delta risk reversal shows a premium for EUR puts of 0.30%.
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 0.7725 – 0.7900 (only 175 pips but now it has moved down by 25+ pips from the range we were showing for the past few days).
Expiries: 0.7825 & 0.7850
