BUZZ-FX options wrap - Safe-haven vols surge as risk aversion bites

A big slide in U.S. tech stocks lifts the VIX index and drives safe haven demand for CHF and JPY and their related currency options.

USD/JPY implied volatility surged from 6-month lows as USD/JPY fell to lows since Dec. 18. One-week up 2.0 to 11.5 and 1-month from 9.0 to 10.25, while 1-month risk reversals increased from 0.8 to 1.25 JPY calls over puts. Gains were accompanied by outright demand for JPY calls, with 150.00 a seemingly popular downside hedge.

USD/CHF 1-month implied volatility reached 7.35 from 6.8 beside a significant increase in the 1-month risk reversal premium for CHF calls over puts to 0.55 from 0.15.

JPY and CHF related cross implied volatility was also higher, but other pairings saw little change as the weaker USD failed to attract any haven demand in this instance.

The implied volatility of currencies unrelated to risk remained broadly unchanged, having met demand late last week in the wake of heavy losses in the wake of President Donald Trump's inauguration. This week's key data and central bank announcements, which include those from Canada, the U.S. and euro zone, are helping to underpin shorter dated implied volatility.

EUR/USD 1-month implied volatility traded 7.55-7.6 on Monday after last week's setback from the low 9's to the low 7's. Price action in spot and options is consistent with more upside potential toward 1.0900 if some key resistance levels can be overcome, although policy divergence will cap the extent of overall gains.

EUR/USD risk reversals are attracting some demand from their lower levels for EUR puts/USD calls as a way to hedge any renewed spot losses.

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