The Forex NFP volatility risk premium remains near extreme levels, with minimal changes observed since Thursday when the overnight option expiry first factored in the NFP data. Most premiums are trading near their highest levels for NFP data over the past year.
An exception is USD/JPY, where recent low realised volatility affects the curve. The overnight expiry USD/JPY premium is around 108 JPY pips in either direction. Meanwhile, the overnight expiry EUR/USD premium or break-even stays around 72 USD pips, GBP/USD holds at extremes of 102 USD pips on either side, and AUD/USD maintains a 36 USD pips premium in either direction.
The cash hedging of option strikes can assist in managing FX as their expiration approaches. This has been evident around the significant 1.0300 strike level for EUR/USD. On Thursday, 4 billion euros expired, and there are many more to follow after the NFP. There are 2.6 billion euros of 1.03's set to expire on Friday, and a substantial 6.5 billion in 1.0300-10 strikes will expire at 10 AM New York time on Monday. While 1.0300 is crucial for the moment, be cautious of the high volatility risk premiums associated with the NFP.FX Options Insights 10/01/25
The Forex NFP volatility risk premium remains near extreme levels, with minimal changes observed since Thursday when the overnight option expiry first factored in the NFP data. Most premiums are trading near their highest levels for NFP data over the past year.
An exception is USD/JPY, where recent low realised volatility affects the curve. The overnight expiry USD/JPY premium is around 108 JPY pips in either direction. Meanwhile, the overnight expiry EUR/USD premium or break-even stays around 72 USD pips, GBP/USD holds at extremes of 102 USD pips on either side, and AUD/USD maintains a 36 USD pips premium in either direction.
The cash hedging of option strikes can assist in managing FX as their expiration approaches. This has been evident around the significant 1.0300 strike level for EUR/USD. On Thursday, 4 billion euros expired, and there are many more to follow after the NFP. There are 2.6 billion euros of 1.03's set to expire on Friday, and a substantial 6.5 billion in 1.0300-10 strikes will expire at 10 AM New York time on Monday. While 1.0300 is crucial for the moment, be cautious of the high volatility risk premiums associated with the NFP.Publication date:
2025-01-10 13:23:25 (GMT)
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