FX Options Insights 12/11/24
USDCNH - spot hits fresh highs not seen since August, the market is reportedly substantially long on the currency. Volumes of FX options have increased, especially for downside strikes, which are used to protect against any decline in the USD/CNH spot price. Even with the spot gains, downside strikes are still more expensive than upside ones. Using 1-week 25 delta risk reversals at 1.1, there was a notable buyer of USD puts vs calls on Tuesday. Additionally, implied volatility is rising once more; following the US election, the benchmark 1-month fell from 9.0 to 6.0 to 6.7.
EURUSD - 24-hour increase of 1.0 in 1-month expiry vol 7.825 (down 9.0-6.25 post-election). As end customers continue to purchase USD and options, the market covers USD shorts. A barrier breach at 1.0650 increased demand for USD/option; more are at 1.0600. The lows of 1.0601 on April 16 and 2024 should also be good stops. The enormous 1.8 billion euros of 1.0600 strikes that expire on Tuesday can either draw or contain FX. U.S. CPI data indicates near-term risk; markets are not complacent.
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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!