Market Stress Evident in USD/TRY Options

The 15% slide in TRY at the open may be abating, but underlying stress remains highly evident in currency options markets. One-week realised vol has touched levels not seen since 2018 (when the US considered economic sanctions on Turkey), which has fed through into the front-end of the USD/TRY implied curve. 3m implied vols are now clearing at the highest level for two-and-a-half years.

• Perhaps the shift in sentiment is most evident in the USD/TRY SMILE curve, with the curve itself now even more heavily skewed toward OTM calls. One-month 5-delta calls now clear north of 60 points despite trading at below 30 points this time last week.
• The sharp increase realised and implied vols has made hedging via options too expensive to bear: an ATM vanilla call option now costs a colossal 1,700 USD pips.