FX Options Insights 25/09/24

There is a reluctance to build significant short USD positions via USD put options, suggesting a lack of conviction about deeper USD losses. The broad USD is back under pressure since initial post Sep 18 Fed losses.That's stalled the post Fed setback in FX option premium/implied volatility, benchmark 1-month expiry implied volatility is marginally higher on the week, however, demand for USD puts - options to sell the USD, remains limited. EUR/USD has tested above late August highs at 1.1201, but related implied volatility is only marginally higher, with limited demand or additional premium for topside strikes. There could be value in long topside strikes at current levels, as they would increase in value if EUR/USD threatens/breaks longer term highs at 1.1276.

GBP peaked against the EUR ahead of big 0.8300 barriers on Tuesday, while GBP/USD breached those at 1.3400 for 1.3430 before attracting FX and gamma sales to signal a potential upside limit.

USD/JPY saw demand for short dated expiry options to capture volatility related to Friday's LDP election, which could have BoJ policy and FX implications and shouldn't be ignored.

The Swiss National Bank is expected to cut rates by 25bps or 50bps on Thursday, with the uncertainty heightening the related CHF volatility risk that's attracting plenty of additional risk premium to overnight expiry options.