Here’s what’s sticking out on the options board today

Today’s options board has something that piqued my attention. It’s the EURGBP and GBPUSD expiries at 0.8950 & 1.2700. Here’s why;

  • They’re both all calls (give or take a handful of change) so need the price above the strikes at expiry to be winners for the holders
  • Effectively, they create a long EURUSD position (long EUR, short GBP & Long GBP, short USD)
  • While we can’t assume that there’s just one holder, any options related action in one or both will have a consequence in EURUSD. If we state the fact that the holders will need 0.8951 and 1.2701 to be in profit (ignoring premium), that gives an effective rate of 1.13686 in EURUSD

How can we trade it?

As I’ve written often, you can’t rely on possible options action into an expiry as there’s far too many variables and conditions that need to be met, making it opportunities very rare. Trading in hope that the spot price moves into expiry is high risk and uncertain. However, the trade I would look at is seeing whether one or more prices gets pulled out of sync with whatever trend is running at expiry. I’ll use an extreme example. Say it’s 14.45 BST and Nowotny says something dovish about the ECB and EUR drops. ‘IF’ we saw EUR then rise into the expiry (and it looked like an option related move) I would be inclined to think that after the expiry, the Nowotny news would reassert itself and EUR would fall again. That’s the sort of trade I would look at.

For this case, we’d have to see what happens nearer the time but perhaps now, with not much going on, and thus not much volume going through FX books, we’re seeing EURGBP and GBPUSD being kept around these expiry levels.

Probably, absolutely nothing will happen at all, and all this will be rendered pointless but very rarely we get something in the options that deserves greater scrutiny for a trade than usual, and that’s all I’m pointing out. There may be a very slim chance of an opportunity to trade something but as a trader, I’m constantly looking for opportunities, slim or otherwise.

Ryan Littlestone

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