FX Options Insight 05/11/24
The overnight options expire at 10 a.m. on November 6. The outcome of the U.S. election is now included in New York time, which causes their premiums and break-evens to rise sharply. Many of them hit multi-year highs, indicating the perceived magnitude of the FX reaction. Dealers utilise implied volatility as a stand-in for FX volatility, which is an unknown but important component of an FX option premium. Actual and realised volatility would match implied in a correctly priced option; any discrepancy would be a trading opportunity. Tuesday's markedly higher overnight expiry indicated volatility amply illustrates the perceived potential of substantial FX realised volatility fuelled by the outcome of the upcoming election. A straightforward vanilla straddle option carries a premium/break-even of 41 USD pips to 132 USD pips in each direction, with overnight expiry EUR/USD implied volatility rising from 9.0 to 29.0. In either direction, the implied volatility of the GBP/USD pair has risen from 10.0 to 23.0, or 54 to 125 USD pips. The implied volatility of the USD/JPY fluctuates between 14.0 and 35.0, or 90 to 222 JPY pips, in either direction, and the AUD/USD fluctuates between 14.0 and 36.0, or 38 to 100 USD pips, in either direction.
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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!