BUZZ-COMMENT-Sterling clues from the options market
July 27 (Reuters) - Implied volatility gauges actual volatility expectations and determines the price of options. It's little changed at 8.0 for benchmark one-month options, compared with EUR/USD's 1.5 vol gain , and USD/JPY's 2.0 vol gain since last week.
GBP/USD one-month risk reversals are unchanged at 0.3 vols for GBP puts over calls (spot downside) since being repriced from 1.5 vols in late June. For context, they were 0.5 vols for GBP calls (topside) pre-crisis, before hitting a 4.0 vol peak for GBP puts (downside) in mid-March. Stagnating price action in risk reversals and implied volatility suggests any further potential GBP/USD gains will remain a grind, which doesn't favour options.
Traded option volumes have been light throughout the recent GBP/USD move higher, significantly less than March, and even before the start of the coronavirus crisis, suggesting many regular participants remain on the sidelines while lacking any real conviction over volatility/direction.
Option barriers allegedly reside at 1.30, so a break would open potential to early March and late January highs by 1.3200 and may reignite some option interest.
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GBPUSD 1-month implied volatilityhttps://tmsnrt.rs/3jHQEXK
GBP/USD risk reversalshttps://tmsnrt.rs/3jM7JQc
(Richard Pace is a Reuters market analyst. The views expressed are his own)