FX Options Insights
Throughout February, key currency pairs' implied volatility and USD call premiums compared to puts have been rapidly declining, reaching lows not seen since 2025. This has rekindled buyer interest by creating alluring risk-reward opportunities, especially in the EUR/USD exchange rate.
While current buyers concentrate on lower-priced downside strikes in anticipation of movement following the German elections, early sellers of EUR/USD implied volatility most certainly secured gains. Early London trading saw a 1.3 billion euro put/USD call with a two-week expiration at 7.35.
With no response to UK data, the GBP/USD exchange rate is still range-bound over 1.2600. The one-month implied volatility dropped from 9.0 in February and 11.0 in January to 6.5, the lowest level since September.
Although still above realised volatility, AUD/USD implied volatility has fallen to levels not seen since July 2024, suggesting that additional falls may be in store unless the G10 as a whole recovers.
With a 1-month implied volatility of 4.25, down from 6.25 in January and a peak of 9.25 prior to the U.S. elections, the USD/CNH has experienced its lowest volatility since August.
Realised USD/JPY volatility is still low, which puts pressure on implieds. Demand for JPY calls over puts increased from 1.1 in one-month 25 delta risk reversals as traders watched for a possible break at 150.00.
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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!