US Non farm Employment Data Reflects Foreign Exchange Risk in the Options Market
US Non farm Employment Data Reflects Foreign Exchange Risk in the Options Market
① As the release date of the December non farm payroll data in the United States approaches, foreign exchange market participants use the options market to hedge potential risks, and the implied volatility of related options has significantly increased. Implied volatility is a key unknown parameter in option pricing, and traders usually use its best estimate. Therefore, when the option expiration date includes an event that may trigger market volatility, the change in implied volatility will reflect the market's expectation of the additional foreign exchange volatility that the event will bring;
② Specifically, the implied volatility of overnight EUR/USD options has risen from 11.5% to 16.75% since Wednesday, resulting in a premium/breakeven point of 49 to 72 basis points in either direction for a simple regular cross option combination; The implied volatility of overnight USD/JPY options has increased from 12.5% to 17.0%, with a premium/breakeven point of 82 to 113 basis points in either direction; The implied volatility of overnight AUD/USD options increased from 10.0% to 14.0%, with a premium/breakeven point of 26 to 36 basis points in either direction;
③ The implied volatility of overnight GBP/USD options has increased the most, doubling to 20.0% since Tuesday, and its premium/breakeven point has also increased to 102 basis points in either direction. This not only reflects market concerns about US non farm payroll data, but is also influenced by factors such as the significant rise in the overall implied volatility of the pound to nearly a two-year high, as well as key speeches by Sarah Breeden, Deputy Governor of the Bank of England;
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