FX Options Insights
Reciprocal tariffs imposed by the US on its trading partners have significantly influenced the USD and its associated risk profile, driving heightened demand for volatility protection and USD put options. Among affected currencies, USD/JPY has experienced the most notable impact, plunging nearly five big figures to the 145 range within a 24-hour period. Its implied volatility has surged to new peaks for 2025, with a 1-month increase of 2.0, surpassing the previous high of 12.4 recorded on March 10. One-month expiry risk reversals have also traded above prior peaks for JPY calls over puts since September, now standing at 1.9.
Demand for EUR/USD topside strikes has remained strong, even before breaking through the 1.1000 and 1.1100 levels. Risk reversals have witnessed substantial trading volumes, reaching new highs for EUR calls over puts since March 2020. Implied volatility has climbed to recent highs since January, with a 1-month increase to 9.8 from the low 8s observed earlier this week.
GBP/USD risk reversals have shown an unusual GBP call-over-put premium on 1-month expiries, while other tenors have seen a reduction in GBP put premiums as the spot price rallied to fresh highs since October, surpassing the 1.3200 level. One-month expiry implied volatility has risen by 1.0 to reach 8.2.
For AUD/USD, the 1-month implied volatility has seen a modest increase to 9.6 from 9.25 following the tariff announcement, remaining below the early March highs of 10.45. The pair continues to trade within its familiar 0.6200-0.6400 range.
The widespread demand for gamma (short-dated options) has driven overnight expiry implied volatility to multi-year highs, as investors seek to capitalise on and hedge against elevated spot volatility, particularly in USD puts. This expiry coincides with Friday's US jobs data for March, where a weaker-than-expected outcome could exacerbate the USD's ongoing struggles.
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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!