FX Options Insights
EUR/USD is leading a significant surge in implied volatility for EUR/cross options, with a pronounced shift in premiums favoring EUR calls over puts. The lack of topside options for EUR/USD, coupled with related hedging activity, has driven up both spot and option prices as short positions were unwound. One-week implied volatility jumped by 3.0 points within 24 hours to reach 11.25, while one-month volatility climbed from 7.8 to 9.15 before some profit-taking set in. The one-week 25-delta risk reversals shifted from favoring 0.5 EUR puts on Tuesday to 1.25 EUR calls on Wednesday, marking the largest topside premium over downside strikes since 2020. Similarly, the one-month 25-delta erased its 0.65 volatility premium for downside strikes observed on Tuesday.
Trading volumes were robust, with DTCC reporting 12 billion euros in EUR calls/USD puts traded by midday in London. Demand for the euro was broad-based, driving higher implied volatility and increased call interest across all EUR-related pairs, albeit to a lesser extent compared to EUR/USD. While implied volatility remained elevated relative to recent peaks in other currency pairs, it did not match the intensity of gains seen in EUR pairs. Meanwhile, GBP/USD’s rise above 1.2800 fueled interest in options targeting a move to 1.3000.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!