The trading week starts out with volatilities higher across the board as the volatilities have bounced off some very lows levels. Some sharp movements in the foreign exchange markets and some pivotal news events last week have resulted in short and longer term implied volatilities being bid higher. There was added uncertainty in the market last week as control of congress shifted from the republicans to the democrats. Last week the Bank of England and the Reserve Bank of <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Australia both raised rates by 0.25% which continues the trend of higher interest rates around the world. The Federal Reserve seems to be holding steady, but the market will find out more once the FOMC minutes are released on Wednesday. This week is very busy in terms of economic news. Tuesday has PPI and retail sales numbers. Wednesday has NY Empire Index and the FOMC minutes. Thursday will have Initial claims, CPI, Capacity Utilization and Philadelphia Fed. Friday will have Housing starts, Building permits, and the Michigan Sentiment Index.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
The risk reversals have changed from last week. The risk reversals in EUR/USD have moved in favor of EUR calls. The 1 month 25 delta risk reversal has the EUR calls trading at a volatility premium of 0.3%/0.6% over the EUR puts. The USD/JPY favors of USD puts versus USD calls. The volatility premium now stands at 0.6%/0.80% for USD puts over USD calls.
Sample Option Trade Strategies
Below please find some strategies, which depending on your view might be applicable. Please bear in mind that all of these trades can be applied to any of the currency pairs, which may be traded. All barrier levels, strikes, triggers, payouts, and maturity dates can be tailored to each individuals views.
