FX Options Market Combined Volume Expiries. A weekly retrospective review for the financial week ending: 05, 06, 2020
Hello everybody and thank you for joining us for the daily FX Options Market Combined
Volume Expiries review for the trading week ending on Friday 05th June 2020. Each week we will bring you a video taking a look back at the previous week’s FX option expiries and how they may have attributed to price action leading up to the maturities which happen at 10 AM Eastern Time, USA.
If it is your first time with us, the FX currency options market runs in tandem with the spot FX market, but where traders typically place Call and Put trades on the future value of a currency exchange rate and these futures contracts typically run from 1 day to weeks, or even months.
From the FA website, our analyst, Kevin O’Sullivan, will bring you details of the notable FX Options Market Combined Volume Expiries, where they have an accumulative value of a minimum of $100M + and where quite often these institutional size expiries can act as a magnet for price action in the Spot FX arena leading up to the New York 10 AM cut, as the big institutional players hedge their positions accordingly.
Kevin also plots the expiration levels on to the relevant charts at the various expiry exchange rates and colour codes them in red, which would have a high degree of being reached, or orange which is still possible and where these are said to be in-play. He also labels other maturities in blue and where he deems it unlikely price action will be reached by 10 AM New York, and thus they should be considered ‘out of play.’ Kevin also adds some technical analysis to try and establish the likelihood of the option maturities being reached that day. These are known as strikes.
Please bear in mind that Kevin will not have factored in upcoming economic data releases, or policymaker speeches and that technical analysis may change in the hours leading up to the cut.
So let’s look at a few of last week’s option maturities to see if they affected price action.
On Monday, the 1st June Kevin’s early morning analysis suggested the euro USD pair was overbought and had the potential for a pullback to the 1.1100 maturity at the 10 AM new york cut.
In this picture, we can see the same pair where the exchange rate was 1.1127 at the cut. You will, however, note that the price action had previously gravitated to 1.1100 before moving higher by just 27 pips at the maturity.
Tuesday was light on the options maturity calendar, and so let’s move straight into Wednesday.
We have the US dollar Japanese yen pair with Kevin’s early analysis suggesting price would
move higher to the resistance line before falling lower to one of the two maturities at 108.70 or 108.50.
Here we can see a later slide of the pair which ran exactly as predicted and where the exchange rate was ranging between the two red maturities.
Here we can see that the price hit 108.66 at the 10 AM cut. Just a few pips in-between the two.
Still, on Wednesday, we had a slew of options between 1.1175 and 1.1220, and price action remained concentrated around these levels.
Price hit 1.1215 at the 10 AM cut, which was an official strike.
Again on Wednesday, we had a maturity at 1.2560 for cable. Kevin’s early technical analysis here where he suggested the price was capped and due for a pullback.
As you can see here, price action a few hours later confirmed the analysis with the exchange rate hitting 1.2566 at the cut. Just six pips away from the maturity.
On Thursday, Kevin’s early analysis of the EUR-USD pair was that it was oversold on the one hour chart and that there could be a great deal of volatility after the Eurozone interest rate decision and US jobs data.
Indeed we see that volatility was born out in this chart at just before the time of the maturity.
Price hit 1.1268 at the time of the cut, where the exchange rate hit 1.1268, just 23 pips above the 1.1245 maturity. This might suggest option maturities play a part in even the most volatile trading sessions. Because the EUR-USD pair was at multi-month highs, we can estimate that most of the options were calls, where all traders would have been in the money at the cut.
On Friday, we have the Euro us dollar pair in focus again with Kevin’s analysis suggesting the pair was overbought, and in fact, the pair did pull back in volatile trading.
Price action for the pair hit 1.1297 at the cut. Just three pips below the option at 1.1300, which Kevin had labeled in red.
All in all, this was a very successful week where our analysis and option maturities levels have helped traders make profitable trades in this very difficult market.
Please remember, Kevin’s technical analysis is based on exchange rates, which may be several hours earlier in the day and may not reflect price action at the time of the maturities.
We suggest you get into the habit of visiting the FA website each morning just after 8 AM BST and take the levels and plot them onto your own trading charts and incorporate the information into your own trading methodology in order to use the information to your advantage.
Remember, the higher the amount, the larger the gravitational pull towards the exchange rate maturity at 10:00 AM Eastern time.
For a detailed explanation of FX options and how they affect price action in the spot forex market, please follow the link to our educational video.