Don't ignore 2024's biggest EUR/USD FX option expiries
Dec 12 (Reuters) -The biggest EUR/USD strikes of 2024 are due to expire on Friday and the related effect on FX spot markets shouldn't be ignored.
Those using FX options to trade and manage FX volatility will also be heavily involved in the cash market, constantly adjusting positions to offset currency risk and monetising FX volatility.
As the option strike expiry approaches - 10:00 a.m. New York (1500 GMT) for G10 currency pairs - these hedging flows will typically increase as that cash-versus-option relationship becomes more crucial to profit and loss. If an option is likely to be exercised, the opposing party may need to buy or sell more of the underlying currency to meet their obligation.
If the option strike is near the current FX spot price, these hedging flows can often drive the FX spot market towards the strikes and help to contain price action until they expire, so it's worth knowing where they reside in advance.
There are plenty of large FX option expiries in EUR/USD and the other major currency pairs on Thursday, but massive EUR/USD strikes near the current spot price expire on Friday. The largest are strikes at 1.0500 - currently standing at 7.4 billion euros. To the downside there are 2.2 billion euros between 1.0450 and 1.0460, 1.8 billion euros at 1.0520-1.0525, 5 billion euros at 1.0400 and 2.6 billion euros at 1.0375. To the topside there are 2.6 billion euros at 1.0550 and 4.8 billion euros at 1.0600.
Markets are on high alert for ECB-induced volatility on Thursday, but these massive options and related hedging flows might quickly tame any volatility and help contain EUR/USD through Friday's 10:00 a.m. New York cut.
For more click on FXBUZ
EUR/USD FX option strike expiries December 12-13 https://tmsnrt.rs/4ivBK5m
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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