Option Volatilities
The US dollar has moved up dramatically after Fridays employment numbers. The payroll numbers fell short of expectations, but upward revisions to previous payroll numbers gave the dollar a huge boost. Volatilities seemed to have bottomed out last week as questions have arisen about whether or not the Fed will raise the Federal Funds Rate. Another boost to volatilities comes from the geopolitical tensions concerning <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />North Korea and their nuclear testing. Wednesday will be the release of FOMC minutes which could be very important in the foreign exchange market. Thursday will bring Trade Balance and the Feds Beige Book report. Fridays releases include Export and Import Prices, Retail Sales and Michigan Sentiment number, all of which should give a clearer picture of the economy and inflation.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Option volatilities stabilized and are bid higher this week. The risk reversals in the EUR/USD reversed course with the EUR puts now higher than the corresponding EUR calls. The 1 month 25 delta risk reversal now has EUR puts trading at a vol premium of 0.0%/0.20% over EUR calls. The USD/JPY is still trading with the USD puts higher versus USD calls. The volatility premium is 0.2%/0.40% 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.
