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FXO Market Update - AUDUSD makes new lows and vols are bid
Summary: Risk continue to trade fairly poor while FX getting some relief from the USD bid. EURUSD and USDJPY been relative stable over the last session while AUDUSD is down from 0.7075 on the opening yesterday to 0.6920 lows today. Vols continue to trade bid and AUD vols are considerably higher after the last days move, 1 month AUDUSD up 2 vol from Friday to 15.25.
Saxo Bank publishes two weekly FX Options Market Update reports covering changes and updates on the FX Options and FX Volatility market. They describe changes in FX volatility levels, risk premium and ideas how to trade based on these.
Risk continue to trade poor with equities another leg lower yesterday. FX trades relative stable with EURUSD holding above 1.0500 and USDJPY trading around 130.00 for the last week. Implied vol trades bid while realized vol starts to come lower in some pairs. AUDUSD traded down to 0.6920 today before data came out and showing strength of retail volumes. AUDUSD vols are turbo bid after spot has dropped from 0.7075 on the opening yesterday to 0.6920 lows today. 1 month is up from 13.25 on Friday to 15.25 now, trading as high as 15.70 earlier in Asia with spot on the lows. 1 month risk reversal has moved from 1.8 to 2.8 for puts in the same time and the risk premium has widen over the last days and currently trades at 2.3 vol.
Next big data point is USD CPI tomorrow and consensus is for a move lower to 8.1 from the peak at the last reading at 8.5. If this happens we might get a relief rally in risk and USD to trade lower as we get a first indication of a turn around.
The elevated vol and risk reversal makes it attractive to sell AUDUSD puts as a trade for a low CPI reading tomorrow.
Sell 1 week 0.6900 AUDUSD put
Receive 36 pips
Alternative
Sell 1 month 0.6700 AUDUSD put
Receive 40 pips
Spot ref.: 0.6960
- The Top/Bottom charts shows the top 5 and bottom 5 values/changes for at-the-money vol, risk reversal (RR) and risk premium of the 45 currency pairs we are tracking.
- Risk premium: Implied (Imp) minus realized volatility. A positive risk premium means implied volatility trades above realized volatility, i.e. the implied volatility can be seen as “rich”.
- Change: The difference between current price/volatility and where it closed 1w ago.
FX Options Trading:
You should be aware that in purchasing Foreign Exchange Options, your potential loss will be the amount of the premium paid for the option, plus any fees or transaction charges that are applicable, should the option not achieve its strike price on the expiry date
If you write an option, the risk involved is considerably higher than buying an option. You may be liable for margin to maintain your position and a loss may be sustained well in excess of the premium received.
By writing an option, you accept a legal obligation to purchase or sell the underlying asset if the option is exercised against you; however far the market price has moved away from the strike. If you already own the underlying asset that you have contracted to sell, your risk will be limited.
If you do not own the underlying asset the risk can be unlimited. Only experienced persons should contemplate writing uncovered options, then only after securing full detail of the applicable conditions and potential risk exposure.
Learn more about FX Options:
Forex Options – An introduction
Forex Options – Exotic options
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