FX Options Insight
Implied volatility in FX options remains highly sensitive to news due to ongoing uncertainties surrounding trade discussions and the credibility of the U.S. economy. This volatility is expected to remain significantly higher than levels seen before the U.S. tariff announcement on April 2. On Thursday, both risk sentiment and the U.S. dollar were under pressure during the London trading session, causing a rise in implied volatility. However, this increase was quickly reversed when China expressed readiness to negotiate with the U.S. under certain conditions, helping stabilise markets and improve risk sentiment.
Option markets are cautiously adjusting their positions ahead of the long Easter holiday weekend, wary of reducing their exposure too much, as thin liquidity during the holiday could amplify any sudden shifts in risk sentiment. In terms of directional trades, there is strong interest in buying USD puts against JPY and EUR, with less demand for GBP. A favoured strategy has been acquiring USD call RKO options, which offer a significant discount compared to standard vanilla USD puts. Risk reversal contracts highlight the recent rise in volatility risk premium for USD puts relative to EUR, JPY, and GBP.
In the AUD/USD pair, there is interest in AUD call/USD put options with strike prices up to 0.6600 across various maturities, indicating that the longer-term range highs around 0.6400 are perceived as increasingly vulnerable. Please see today's Daily Trade Setup Video for a framework to trade this view in the spot market; click here!
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
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!