BUZZ-COMMENT-EUR/USD options flag heightened risk of 1.1600

Credit: REUTERS/Thomas White

July 15 (Reuters) - The forward-looking nature of FX options can offer clues on the outlook for EUR/USD when looking at flow data and price action, and there's renewed interest at 1.1600.

Dealers are buying one-week expiry 1.1500 EUR calls and one-month expiry 1.1600 EUR calls. They allow holders to buy EUR/USD at the strike price at expiry but will increase in value as EUR/USD and implied volatility gains. The flows reflect investor demand, forcing dealers to cover exposure at those levels, which they clearly see at more risk of being realised.

Implied volatility, which determines the price of the option, is trending higher -- typical of increased demand. One-week expiry implied volatility is now 9.0, from 7.5 on Monday, while the benchmark one-month expiry implied volatility is 7.15 from 6.55 on Monday.

The EUR call options trade a higher implied volatility than options with strikes nearer current spot (at-the-money)- one-month 1.16s around 0.35 higher, which is typical of greater perceived risk in that direction.

ECB on radar .

For more click on FXBUZ

1-week and 1-month EUR/USD implied volatility

1-3-12-month EUR/USD risk reversals

(Richard Pace is a Reuters market analyst. The views expressed are his own)


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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