BUZZ-COMMENT-FX options flag extent of euro volatility risk from EU summit

Credit: REUTERS/Phil Noble

July 17 (Reuters) - Overnight options now expire Monday, July 20 at 10am New York time (1400 GMT) and therefore capture euro FX fallout from the July 17-18 European Union summit, where the 27 leaders will discuss the 750-billion euro pandemic relief fund .

Overnight expiry implied volatility is a key parameter in the price of the option - it's always lower on a Friday, to offset the cost of holding an option over the two non-trading days before expiry. It's now trading at 8.5 compared with a typical Friday price around 5.0.

In premium terms, for a simple vanilla straddle option, 8.5 implied volatility is 70 USD pips in either direction to break even, compared with 40 pips at 5.0 implied vol.

Monday July 20 expiry options have proved popular of late - with a massive set worth six billion euros set to mature on Monday . Option traders typically trade cash around the strikes to monetise the actual volatility, so the size of existing strikes combined with the price of Monday options suggests they are not expecting a tame euro reaction.

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eurusd monday expiry options

EUR/USD overnight/Monday expiry implied volatility

(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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