Today’s forex option expiries for the 10 am (15.00 GMT) New York cut 25 January 2018
Aside from the possible magnetic effect on prices that options have, looking at the bigger picture can tell us a lot about how players are positioned. Firms and businesses can use options to hedge positions, like we hear often in USDJPY with importers and exporters. Speculators can also use options to lay cheap bets on price direction, or to also hedge positions. The options can tell us what the market is looking at above and below the near-term price, which is why a lack of options coverage in pairs can be telling. There’s three pairs that stand out right now, USDJPY, GBPUSD & EURUSD. There’s pretty much nothing on the board sub 109.50. The next decent option below is a mere 190m at 106.8. After that it’s 140m at 105.60 & 609m at 101.80. It’s a similar picture for the euro and pound to the upside. In Cable, there’s absolutely nothing today until 60m at 1.5500.
The lack of options coverage in the direction that pairs have moved has only added to these moves and volatility. Options can bring a lot of liquidity support and resistance to the market but when there’s areas of low or zero options coverage, that can leave a liquidity gap, which then can add to the volatility and size of moves as traders scramble to cover positions they hadn’t previously hedged via options. It’s as if the market was never expecting the dollar to fall so much and so they didn’t bother covering or hedging. In other words, traders were complacent with the range, sentiment and the overall view that the dollar was still bullish. Now it’s hit an air pocket, traders are playing catch up.
Rest assured, option traders will be catching up and we’ll start to see more balanced expiries above and below. A quick look at the days and weeks ahead shows that the bottom and top sides for the pairs I’ve mentioned, are slowly building interest. Read this for more on the wonderful world of forex options and their effect on the market.
For today, the big areas of interest are in USDJPY around 110.00 and EURUSD around 1.2500.