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USD/JPY Rally Prompts Options to Reverse Omicron Inspried Implied Vol

JPY
  • USD/JPY front-end risk reversals rising in sympathy with spot so far today, with the pair back above the 116 handle and printing fresh multi-year highs.
  • The move has prompted 1m RR to almost entirely reverse the omicron-inspired plunge at the end of November, with the contract closing in on the -0.2 points last seen on Nov25.
  • Hedging activity via options has been very healthy so far Tuesday, prompting particular interest in USD/JPY calls, with close to $2 in calls trading for every $1 in puts today.
  • Strikes of interest include 116.00 and 120.00, but the 117 handle has drawn the most focus, with close to $800mln wagered against that strike thanks to a series of call options eyeing a mid-January and early-February expiries.
  • The trades capture the next BoJ and Fed decisions (Jan 18, Jan 26) as well as the beginning of the next US earnings cycle, which informally kicks off on January 14th.
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