FX Options Insights 17/03/25
The pricing of FX options reflects a spot market that is relatively stable, with limited expectations for renewed volatility or significant directional shifts. This is in spite of numerous central bank policy updates and potential data risks occurring this week.
Implied volatility takes these risks into account as a component of the FX option premium. It reached its highest levels for 2025 within most G10 currency pairs in late February and early March, coinciding with a decline in the USD and increases in the EUR and JPY. However, over the past week, this volatility has decreased as the extreme currency movements subsided and consolidation took place. The implied volatility for options expiring in less than three months has nearly entirely retraced the gains made in March, while longer-dated expirations are also catching up.
The benchmark for one-month expiry EUR/USD implied volatility has completely reversed its gains from 7.7 to 9.2, and risk reversals have returned to a neutral premium in the one-month contract. This has occurred after they surged from a downside strike premium to the highest topside strike premium since 2022 in early March. Nevertheless, despite booking profits following the significant rally in spot and option prices, many traders are still keeping 3-6 month expiry EUR calls with triggers set at 1.1500 active for the time being.
Notable EUR/USD expiries for the upcoming week begin on Monday with 1.0820-30 strikes amounting to 1 billion euros. On Tuesday, the expiries are 1.0745-55 (3.2 bln) and 1.0900-10 (1.5 bln). On Wednesday, there are 1.0750 (1.6 bln), 1.0800 (1.6 bln), 1.0850 (1.1 bln), 1.0900 (1 bln), and 1.0950 (932 million). Thursday has expiries at 1.0700 (1 bln), 1.0740-50 (880 mln), 1.0790-1.0800 (1.6 bln), 1.0870-75 (1.6 bln), and 1.0900-10 (2.6 bln). On Friday, strikes include 1.0700 (794 mln), 1.0785 (802 mln), 1.0800 (1.3 bln), and 1.0900 (1.1 bln).
For the USD/CHF pair, significant strike expiries occur on Tuesday at 0.8800 worth $760 million and on Friday at 0.8970 valued at $920 million. Additionally, on Friday, there are considerable EUR/CHF expiries at 0.9525 (1.2 billion euros) and 0.9675 (1 billion euros).
This week, there isn't much activity regarding GBP-related option expiries, apart from 1.1 billion euros at the 0.8525 EUR/GBP on Friday.
Key AUD/USD strikes fall on Tuesday at 0.6320-30, totaling A$1.8 billion; more are set for Wednesday at 0.6230 (A$1.6 billion) and 0.6340 (A$1.4 billion), and on Thursday at 0.6400-05 (A$1.5 billion). A notable NZD/USD strike is scheduled to expire on Thursday at 0.5670 for NZ$1.5 billion.
For the USD/CAD, larger strikes are expiring on Tuesday at 1.4270-80 worth $910 million, on Wednesday at 1.4315-25 (1 billion) and 1.4565 (1.6 billion), on Thursday at 1.4420-30 (813 million), and on Friday at 1.4280 (886 million), 1.4295 (1 billion), 1.4300 (1.7 billion), and 1.4565 (1.1 billion).
The biggest USD/JPY strike expiries this week so far include Monday at 149.00 (1 billion), Tuesday at 148.50 (1.3 billion), 149.00 (950 million), and 150.00 (1.4 billion). On Thursday, strikes are at 147.80 (540 million) and 150.70 (850 million), while Friday features expiries at 147.00 (1.5 billion), 149.00 (1.8 billion), and 150.00 (1.1 billion). These mentioned strikes could increase in size prior to expiration, and new strikes are expected to emerge as the week continues.
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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!