At present, USDJPY is trading above 123.00 handle, an area that should have a tendency to be fairly 'slippy' based on Deutsche Bank 'Gamma' report issued last week. What this means is that since the USD/JPY market remains short volatility (implied volatility has remained above historical for quite some time), 'gamma scalping' activity to sell USD/JPY strength should be limited, with hedging in the direction of USD/JPY underlying trend by market short puts suggesting risk remains skewed to keep taking the pair higher.
Long/short volatility in a nutshell
Note, when market is long volatility, that translates in implied volatility below historical, thus market makers proceed to adjust that gap by buying volatility (implies long calls), which results in the underlying asset (USD/JPY as an example) being more edgy/trappy as moves into profits in options are hedged by buying/selling contrarian to the option holders' position the underlying asset and seal profits. However, when market is short volatility (implied volatility above historical as in the case of USD/JPY), this forces short volatility players (hold puts) to hedge their unlimited risk exposure by fueling dominant trend in the underlying asset should key levels be broken, as they turn buyers on key bullish breaks or sellers in bear breaks.
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