FX Options Insights 22/11/24
FX options market particpants are seeking protection against EUR/USD falling below the 1.0200 - 1.0000 strike range. Implied volatility has increased to new post-US election highs, and the demand for downside strikes is outweighing the demand for upside strikes, as evidenced by the risk reversal levels. Dealers have reported significant demand for the 1.02-1.00 strike range, which would benefit from further EUR/USD losses and implied volatility gains. The 2-month expiry 1.0000 strike has recently been trading at 9.35, which is 1.5 vols above the at-the-money strike.
The fact that traders of EUR/USD are not short as the pair falls below of 1.04, which might forwarn the end of a nearly two-year era of relative calm, is a serious problem. Conditions following a breakout are likely to be more volatile the longer the quiet period lasts, and traders may be less prepared or positioned for this. With less than one billion euros of an approximately seven billion bet left, the speculators who have been cutting shorts and booking gains are undoubtedly less prepared than they were a few weeks ago. EUR/USD has fallen from 1.0937 to a 2024 low at 1.0330 low. As hedges are adjusted to reflect the likelihood that this pair will drop further, there may be a significant and prolonged reaction if this largely unexpected move lower also surprises those who have non-speculative interests in trading EUR/USD, which is likely given the length of time this pair has been rangebound
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
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!