OPTION VOLATILITIES
The US dollar Index sold off all last week and has continued lower this Monday morning. The USD looks weaker across the board yet lower volatilities imply an orderly sell off for the USD instead of panic and fear. The 1Week through the 6Month volatilities across all the majors have taken another hit, but the longer time periods seem to be seeing the majority of the weakness. The GBP/USD has moved higher through the 1.9000 handle on higher interest rate expectations in Great Britain. However, the implied volatilities on GBP/USD seem to be taking it in stride and continuing lower. At the moment, the Federal Reserve is seen to be on hold and this has given the go ahead to the GBP and the other majors to push higher against the USD. Wednesday will have the release of the ISM Index. Thursday will have the release of Initial Claims and Productivity. Friday will have the release of the important Non-farm Payroll number as well as the ISM Services Index.
The risk reversals in USD/JPY have changed significantly from last week as the JPY has rallied against the USD. 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 now has EUR puts trading at a volatility premium of 0.0%/0.20% over EUR calls. The USD/JPY has increased in favor of USD puts versus USD calls from last week. The volatility premium now stands at 0.5%/0.70% 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.
