COMMENT-FX options warn of extreme NFP volatility risk

March 6 (Reuters) - FX volatility is a key yet unknown parameter of an FX option premium, so dealers use implied volatility as a stand-in. Overnight expiry now includes Friday's key U.S. monthly employment data and its implied volatility has jumped to the highest levels this year.

Shorter-dated expiry implied volatility was already elevated amid the recent USD decline, especially versus the EUR where the German debt/spending increase has boosted the EUR this week. However, the jobs data adds another level of uncertainty and volatility risk to the already ailing USD, which could extend losses on a weak number.

Overnight expiry USD/JPY implied volatility reached 22.00 - a premium/break-even for a simple vanilla straddle of 136 JPY pips in either direction. This compares with an average implied volatility around 14.0 or 86 JPY pips over recent weeks.

Overnight expiry EUR/USD implied volatility reached 20.0 - a premium/break-even of 90 USD pips in either direction. It peaked at 15.0 or 67 USD pips amid Wednesday's broader implied volatility spike when it also included the European Central Bank policy decision. It was trading as low at 9.0 or 40 USD pips last week.

Overnight AUD/USD implied volatility has reached 14.5 or 39 USD pips in either direction since including the U.S. jobs data. That's up from 10.0 or 26 USD pips on Wednesday and lows nearer 8.0 or 21 USD pips last week.