FX options wrap - Reflecting expectations and opportunity

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Improved risk appetite is adding some weight to option implied volatility, but most prices remain well above recent lows, reflecting the ongoing uncertainty from the Omicron variant and upcoming central bank meetings.

GBP/USD pricing and flows show a market still fearful of deeper FX declines, with implied volatility and downside strike premiums well supported, and traded volumes of GBP puts versus calls at pandemic-era highs.

EUR/USD put versus call premiums have eased along with broader implied volatility, but can present opportunities for those who aren't ruling out another EUR/USD decline, especially sub-1.10 barriers where option positioning is light.

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USD/JPY implied volatility and JPY call risk reversal premiums have eased from last week's Omicron-induced highs, but they remain elevated to show a market still wary of further volatility and potential losses.

AUD/USD 1-month implied vol back at 9.8 from the 10.5 peak seen on sub-0.7000 spot lows, with recent 9.5 support expected to underpin setbacks as spot retests 0.7100.

Rate cut predictions don't bode well for USD/TRY and keep option premiums near record highs. Beware the week's big G10 expiries.

Benchmark 1-month expiry FX option implied volatility
1-3-month expiry EUR/USD option risk reversals
GBP/USD 1-3-month expiry FX option risk reversals
GBP puts vs call volumes

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Richard Pace is a Reuters market analyst. The views expressed are his own

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