Options update for the European opening – what happened in the professional market.
As you can see the front end of all the curves are well supported with traders keen not to be caught short going into the CB meetings later this week. Many of the curves are flatter too with many traders funding their short dates with small scale shorts in the latter dates.
| Yesterday | Today | Change | |
| 1w | 10.80% | 12.15% | 1.35% |
| 1m | 10.05% | 10.40% | 0.35% |
| 2m | 10.20% | 10.45% | 0.25% |
| 3m | 10.65% | 10.90% | 0.25% |
| 6m | 11.40% | 11.60% | 0.20% |
AUD USD has headed back to its highs during Asian trading but this has not had a negative impact on option prices. Vols are supported as there is some decent short-covering across the curve ahead of the CB news, particularly in the 1,2 and 7 day periods.
The 1 month 25 delta risk reversal favours AUD puts at -1.35%.
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 1.0280 – 1.0740 (now 460 pips which is 50 pips wider than yesterday’s calculated range but around the same midpoint).
Expiries 1.0500 & 1.0520.
| Yesterday | Today | Change | |
| 1w | 12.00% | 12.45% | 0.45% |
| 1m | 10.50% | 10.65% | 0.15% |
| 2m | 10.60% | 10.60% | 0.00% |
| 3m | 10.75% | 10.90% | 0.15% |
| 6m | 11.30% | 11.40% | 0.10% |
The EUR USD overnight is above 20%with traders expecting some sharp moves post-ECB tomorrow. Note there are some big strikes in the 1.2150/1.2200 area expiring tomorrow. The market is short these options and we expect gamma to remain very well supported.
Flows were mostly buyers of options and we saw some decent size in the front-dates yesterday. So far this morning, anything short-dated is bid in the brokers.
The one month 25 delta risk reversal is now trading at a 1.15% premium for 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 1.2020 – 1.2580 (out to 560 pips and 30 odd points higher than yesterday’s calculated range).
Expiries 1.2250, & 1.2320.
| Yesterday | Today | Change | |
| 1w | 13.45% | 13.85% | 0.40% |
| 1m | 12.45% | 12.70% | 0.25% |
| 2m | 12.60% | 12.70% | 0.10% |
| 3m | 12.95% | 13.20% | 0.25% |
| 6m | 13.70% | 13.75% | 0.05% |
Both currency components are busy and this has helped traders continue to fund their long option positions in EUR JPY. From what we hear, traders are not keen to go short this curve (or any other for that matter).
The one month 25 delta risk reversal has moved back out to -1.30%.
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 93.60 – 98.50 (490 pips which is 20 points wider than yesterday’s call and 20 pips higher).
Expiries 95.90 & 96.10.
| Yesterday | Today | Change | |
| 1w | 7.70% | 8.05% | 0.35% |
| 1m | 7.25% | 7.45% | 0.20% |
| 2m | 7.50% | 7.60% | 0.10% |
| 3m | 7.90% | 8.05% | 0.15% |
| 6m | 8.80% | 8.90% | 0.10% |
USD JPY vols are still supported after spot tested 77.90. There are still some buying flows of topside in the front-end but the activity remains at a low level.
The one month 25 delta risk reversal remains in favour of $US calls by 0.25% 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 77.00 – 79.40 (out by by 10 pips to 240 pips and 20+pips higher).
Expiries 77.80, 78.00 & 78.10.
| Yesterday | Today | Change | |
| 1w | 8.55% | 8.95% | 0.40% |
| 1m | 7.80% | 7.90% | 0.10% |
| 2m | 7.95% | 8.00% | 0.05% |
| 3m | 8.20% | 8.30% | 0.10% |
| 6m | 8.80% | 8.85% | 0.05% |
Cable’s failure to make any inroads above 1.5700 does not seem to have diminished the demand for options in this cross. The most noticeable thing in this pair is the flatness of the curve with few traders willing to buy beyond the one and two month expiry.
The one month 25 delta risk reversal is now -0.65% (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 1.5360 – 1.5885 (525 pips & 70+ points lower than yesterday’s calculation).
Expiries 1.5650 & 1.5680.
| Yesterday | Today | Change | |
| 1w | 7.85% | 8.80% | 0.95% |
| 1m | 7.25% | 7.50% | 0.25% |
| 2m | 7.40% | 7.55% | 0.15% |
| 3m | 7.60% | 7.80% | 0.20% |
| 6m | 8.20% | 8.30% | 0.10% |
Cable’s demise has helped the spot in this cross whip around and, as a result, traders have been caught very short the one and two week expiries. Most of the interest we have seen has been for short dated high strikes which have been out of favour for some time.
The 1 month 25d RR favours GBP calls EUR puts by 0.35% 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 0.7740 – 0.8000 (this is 260 pips wide & 50+ points higher than yesterday’s calculation).
Expiries 0.7820 & 0.7840.
