FX Vol Notebook: AUDUSD vol skews are sitting at historical extremes

 

With spot creeping higher in a relatively tight range we have seen AUDUSD volatility skews move to abnormal levels, creating opportunities for bullish and bearish AUD traders to structure directional views with attractive vol edge. 

In FXVolQuant, with "AUD=" in the search bar, navigate to Single FX Pair Analytics -> FX Volatility Dashboard to find this chart of up and down vol skews overlaid with rolling z-scores.

In FXVolQuant, with "AUD=" in the search bar, navigate to Single FX Pair Analytics -> FX Volatility Dashboard to find this chart of up and down vol skews overlaid with rolling z-scores.

For bearish AUDUSD accounts, this supports simply buying AUD puts/USD calls. In FXVolQuant, navigate to the FX Derivatives Charting page from the bottom left of the home page or from the Single FX Pair Analytics page and enter AUD= into the search bar at the top of the page. From the variable 1 drop down, select the 2M 10-delta put. Notice the implied vol at 8.87% mid-market is bouncing from the range base dating to at least late 2012 and trades with a -2.07 z-score (on a two year window). 

With spot edging lower from solid triangle resistance today there is a good case to be made for buying these discounted low-delta AUDUSD puts in anticipation of a potentially sharp AUDUSD pullback as spot corrects lower and vols correct higher. Adding a knock-out barrier above triangle resistance dramatically cuts premium, increases leverage and takes advantage of the elevated upside AUDUSD skew while keeping max risk limited to the premium paid. 

Stretched vol skews also offer interesting opportunities for AUD bulls looking for spot to break triangle resistance and continue its grind higher. Relatively rich out-of-the-money calls can be used to fund upside plays via 1x1 call spreads (long gamma, fixed risk), 1x2 call spreads (higher leverage but unbounded risk beyond the short strike) or reverse knock-out calls (very high leverage with low premium and fixed risk but you lose an ITM call if the trigger is hit). 

Contact us at strategy@kuma.capital for more information. 

FX Vol Notebook - Cable Gamma is Cheap at 7.55%

1M cable volatility has 7 vols of upside to the one-year 90th percentile realized volatility and just half a vol of risk to 10th percentile realized. 

1M cable volatility has 7 vols of upside to the one-year 90th percentile realized volatility and just half a vol of risk to 10th percentile realized. 

1M ATM vol is trading below 85% of 1M daily realized realized volatility observations and at just 0.8x 2W daily realized volatility. 

1M ATM vol is trading below 85% of 1M daily realized realized volatility observations and at just 0.8x 2W daily realized volatility. 

Long 1M GBPUSD volatility has paid out 0.54 vols at its most recent expiration, 2.95 vols at week ago expiration and 0.20 vol on average over the last three months. 

Long 1M GBPUSD volatility has paid out 0.54 vols at its most recent expiration, 2.95 vols at week ago expiration and 0.20 vol on average over the last three months. 

Current 1M ATM vol at 7.55% is cheap against 2W realized, 1M realized and EWMA vol, all of which are up close to 10%. 

Current 1M ATM vol at 7.55% is cheap against 2W realized, 1M realized and EWMA vol, all of which are up close to 10%. 

See our Daily 1M Long Gamma Monitor for G10 FX.

Contact us at strategy@kuma.capital for more information.