One-month risk reversals
-- a measure of relative demand for options on a currency rising or falling -- showed an increased bias for euro puts, or bets the currency will weaken.
On the Turkish lira, one-month risk reversals
show increased demands for dollar calls, or bets the greenback will rise.
USDXAU 3mth 25 delta risk reversals
have broken out to the downside of three-year lows and the relationship between inflation-adjusted US government bond yields and the price of gold also appears to be broken.
Aussie one-month 25 delta risk reversals
-- seen by many as a barometer for short term fear -- were once again showing an extreme bias for puts, sitting at 4.
What are Risk Reversals
: Risk reversals
are the difference in volatility between similar (in expiration and relative strike levels) FX calls and put options.
Interestingly EUR-USD risk reversals
have now inverted in favor of EUR puts instead of EUR calls out to 6-months (page 12), this may reflect hedging of either outright long EUR or short vega positions via the accumulation of EUR puts.
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, realized skew, butterflies, realized kurtosis and GARCH volatility across a comprehensive universe of currency pairs.
Despite the yen's gains, sentiment toward the yen continued to remain negative, with twelve-month risk reversals
continuing to be skewed toward yen puts, reflecting a higher cost of protection against a sharp depreciation of the yen against the dollar.
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94 per centage point today, the most since February 18, according to 25-delta risk reversals
Charts - Graphical illustration of Risk Reversals
and Implied vs.
CFTC COT data is always delayed by at least 4 days, but the spike in Forex Options risk reversals
suggests we are in the midst of a reversal.