Dec 18 (Reuters) - While it's not an exact science, larger impending FX option strikes can often have an effect on the FX spot market as their expiries draw closer and that certainly appears to be the case in EUR/USD of late.

There have been billions of euros of EUR/USD strikes around 1.0500 expiring over the last few weeks, with this Friday eclipsing last Friday's biggest strikes for 2024. The biggest individual strike expiring this Friday is 1.0500 on 10 billion euros. There are 5 billion euros at 1.0400 and 15 billion euros between 1.0425-50, 6.3 billion euros at 1.0525, 5 billion euros at 1.0550-55, 3 billion euros at 1.0575-80 and 6 billion euros at 1.0600.

While there are many types of traders and investors influencing the FX markets, perhaps the most important when it comes to options are the many institutions that supply and manage liquidity. They may have hundreds of trades on their books at any one time, which require constant hedging to minimise exposure to the related currency pairs - often with cash.

Those using FX options to trade FX volatility will also be heavily involved in the cash market, constantly adjusting positions to offset currency risk and thereby monetising the FX volatility.

As the option expiry approaches - 10 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/sell more of the underlying currency to meet its 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.

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(Richard Pace is a Reuters market analyst. The views expressed are his own. Editing by Mark Potter)

((Richard.Pace@thomsonreuters.com))