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Recent trends in the options market indicate a notable change in volatility expectations, influenced by recent economic reports and upcoming financial events. To start, the overnight expiry options now include the U.S. delayed jobs report for September, which is expected to affect market volatility. There has been an increase in implied volatility, suggesting heightened concerns about potential realised volatility related to these job figures. Traders are also bracing for the upcoming release of the Federal Reserve's meeting minutes from October, as well as the anticipated market response to Nvidia's earnings report, which investors are particularly eager to see.
In the foreign exchange arena, the USD/JPY has been on an upward trend, crossing the crucial psychological threshold of 156.00 for the first time since January. The implied volatility for 1-month expiry contracts has also risen to 9.6, which represents a noteworthy increase of 2.0 from the long-term low seen in early November. There is strong demand for options on both sides—calls and puts—but the potential for intervention by the Bank of Japan (BoJ) is keeping premiums for downside strikes on risk reversals high. This is illustrated by the trading of the 1-month contract, which has observed more activity in calls than in puts, specifically 0.8 JPY calls for every put.
Meanwhile, 1-week expiry options in the GBP market are experiencing increased risk due to the forthcoming UK budget announcement. Consequently, the implied volatility for GBP/USD has soared to 9.0, hitting its highest level since July. The market sentiment reveals a consistent demand for GBP puts, especially targeting strikes below the $1.3000 level, with these options set to expire as late as early 2026.
In the Eurozone, the EUR/USD pair is under downward pressure, although it struggles to keep losses under the 1.1600 level. Implied volatility has declined, largely due to a lack of realised volatility in the present market conditions. Still, volatility remains relatively high compared to recent lows, indicating broader market anxiety. The trend continues to show a slight preference for EUR call options over USD puts, suggesting that traders remain optimistic about EUR/USD's upside potential.
On the Australian dollar front, the AUD/USD is testing the lower end of its medium-term trading range. With implied volatilities remaining elevated, traders may find range binaries attractive, particularly those wagering on limited downturns in the value of the Australian dollar despite current pressures.
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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!