Kim Cramer Larsson
Areas covered in this webinar by Saxo Bank technical analyst Kim Cramer Larsson include EURUSD, USDJPY, GBPUSD, EURGBP, gold, silver, S&P 500, the Nasdaq, the Dax, the FTSE and the Dow Jones.
Article / 11 September 2018 at 14:24 GMT

FX Options: EURUSD volatility over the ECB

FX options trader / Saxo Bank
By Jeppe Norup

This Thursday’s European Central Bank meeting is currently priced with an overnight implied vol of 13.0% in EURUSD, an expected range of 82 USD pips or 63 USD pips for a straddle. 

Thirteen vols for ECB is well above the last 3 ECB meetings, but is very much in line with the average of the past 16 ECB meetings (see figure and table below). However, ECB meetings tend to be overpriced in the options market. In fact, realised volatility based on high-frequency observations (up to 48 daily observations) has proven to come in well below implied vol. 

The past 16 ECB meetings are priced 3.78 vol above realised volatility. So looking from a historic perspective and without digging into any deeper analysis of this particular meeting, FX Options traders should consider selling this ECB event.
Selling the ECB event can be done in many ways, but the most straightforward method would be to sell a straddle or strangle.

ECB FX Options

23 September
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17 January
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I would like to add to your post additional information about EUR/USD volatility. I have taken research of pip range
in period of one year, 12/2017 - 12/218 to show what is average pip range in that period.

For your readers and you you can find those informations here:
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