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BUZZ-COMMENT-What to expect from EUR/USD - according to FX options

Credit: REUTERS/DADO RUVIC

FX options react to current conditions and expectations in the underlying FX market, and recent signals from EUR/USD options say this pair isn't going far for now.

Oct 15 (Reuters) - FX options react to current conditions and expectations in the underlying FX market, and recent signals from EUR/USD options say this pair isn't going far for now.

Options thrive on volatility and directional moves in the FX rate, pricing that risk accordingly with implied volatility - which determines option premium.

However, implied volatility is falling, while additional implied volatility premium for EUR calls over puts, is also losing ground amid the lack of topside progress in spot.

Benchmark one-month implied volatility has almost erased the premium it added for the U.S election - 6.8 from 7.8.

Three-month at 6.35 is a corona-crisis low - last seen in March, with one-year just 0.2 above its own crisis low of 6.35.

One-month expiry risk reversals have seen their topside premium slip to 0.35, although longer dates are holding up for now.

Flows and volumes are limited, reflecting lack of conviction, which suits short volatility and other bets to earn premium on expectations of broader ranges holding for now.

For more click on FXBUZ

1-3-12-month EUR/USD risk reversalshttps://tmsnrt.rs/3lTSgy5

1-3-12-month EUR/USD implied volatilityhttps://tmsnrt.rs/34UFecC

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

((Richard.Pace@thomsonreuters.com))

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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