FX Options Insights 16/06/25

This week, option traders appear content with holding a short Vega and long gamma position. The short-vega strategy may benefit those looking to capitalise on the expected decline in implied volatility, which is forecast to decrease due to ongoing consolidation within established price ranges. At the same time, traders are holding long gamma positions to protect themselves from possible increases in tensions between Israel and Iran, as well as any negative responses to the many central bank announcements happening this week.

The Bank of Japan has now become a focal point for overnight expiry options, contributing to a 4.0-point rise in USD/JPY implied volatility, bringing it up to 18.0. Despite the expectation of no rate changes before 2026, the volatility risk premium has increased due to uncertainties associated with potential news about reduced bond purchases.

Currently, the risk of contagion in the Middle East seems contained, as oil prices and traditional risk-averse indicators have retreated from their recent peaks. However, there has been a noticeable uptick in demand and premiums for haven currencies such as JPY, CHF, and USD. Additionally, an oversupply of existing EUR/USD topside positions, coupled with subdued demand for USD call/EUR put options, has pushed EUR/USD risk reversals to their lowest topside premiums since the introduction of tariffs on April 2.