FX Options Insights 12/03/25
https://www.tickmill.com/blog/institutional-insights-bnpp-fx-vol-options-volumes-are-a-leading-indicator
Implied volatility, a key component of FX option premiums, reflects the risk of realised volatility. Currently, it is under significant pressure, declining from recent highs and levels observed in 2025. The U.S. Consumer Price Index (CPI) figures came in slightly softer than expected, easing concerns that new tariffs might trigger stagflation. This development has helped stabilise the recent stock market downturn and sparked a modest recovery in overall risk appetite—factors that have contributed to reduced option premiums.
USD/JPY options experienced the most notable reversal, driven by the GPIF news on Tuesday and a rebound in spot prices to 149.20 from a low of 146.55. Implied volatility for the benchmark one-month expiry dropped to 11.0 from a peak of 12.4, while one-month risk reversals fell from 1.85 to 1.3, favoring JPY calls over puts. The 145.00 barriers remain intact, benefiting holders of long JPY calls with RKO triggers.
For EUR/USD, one-month expiry implied volatility decreased to 8.3 from 9.0 on Tuesday. Meanwhile, short-term three-month risk reversals have retraced most of last week’s gains, reaching new multi-year highs for out-of-the-money topside strikes. This decline was partly influenced by an influx of newly acquired EUR calls with RKO triggers, many targeting the 1.1500 level.
GBP/USD one-month implied volatility has fallen to 7.7 from last week’s peak of 8.6, while AUD/USD has seen a decline to 9.7 from 10.5. If risk appetite continues to stabilise and FX markets sustain their current trends, implied volatility may see further declines, particularly in shorter-dated expiries.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!