OPTION VOLATILITIES
The trading week starts out on a stable note as option volatilities are flat to lower across the board. Fridays economic numbers gave a huge boost to the US dollar against all major currencies on the back of better employment numbers. The non-farm payroll number for October was lower than expected, however the number for the prior month, September, was revised significantly higher. The unemployment rate came in at 4.4%, which was better than expected. The US dollar pushed higher across the board on Friday as the market focused on what the employment numbers means for the US economy. The Federal Reserve and the possibility of further rate hikes could potentially support the US dollar. The market is watching the mid term elections on Tuesday since this could add some uncertainty and volatility to the marketplace. Thursday is a big news day with the release of Initial Claims, Import Prices, Export Prices, Trade Balance, and the Michigan Sentiment Index.
The risk reversals have remained the same as last week. The risk reversals in EUR/USD remain basically unchanged. The risk reversals in the EUR/USD continue to favor EUR puts over the corresponding EUR calls. The 1 month 25 delta risk reversal has EUR puts trading at a volatility premium of 0.0%/0.20% over EUR calls. The USD/JPY favors of USD puts versus USD calls. The volatility premium now stands at 0.4%/0.60% for USD puts over USD calls.
OPTION TRADE IDEAS
Below please find some strategies, which depending on your view might be applicable. Please bear in mind that all of these trades can be applied to any of the currency pairs, which may be traded. All barrier levels, strikes, triggers, payouts, and maturity dates can be tailored to each individuals views.
