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OPTIONS: Political Risk Drives Surge in EUR Options Activity, Downside in Focus

OPTIONS
  • Given the sharp uptick in volatility and breakout in EUR spot, no surprise to see EUR hedges trading in size and well ahead of average for this time of day. Notably, the break to multi-year lows in EUR/GBP has helped drive demand for downside exposure, led by 0.8375 vanilla puts and trades consistent with a sizeable 0.8300/0.8396 put spread rolling off in early August, thereby capturing the fallout of both the UK and French elections. 
  • No surprise to see the uptick in front-end vols across G10, and this is most clearly seen in EUR/GBP as the 1m contract captures both votes. 1m vols added 0.8 points today to touch the highest since mid-January, marking the biggest one-day gain since March last year (triggered by concerns surrounding the sustainability of Credit Suisse). 
  • This theme is mirrored in EURJPY options trade, as Y160 puts tip the put/call ratio over 2.00, however there are some signs of steadier EUR/USD markets, with near E3bln in calls trading across 1.0775, 1.0800, 1.0900 and 1.1125 strikes this morning alone.
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