Jan 10 (Reuters) - Key FX market-moving events from the United States are on the near-term horizon, making short-dated expiry options an attractive tool to hedge risks and capitalize on potential market over-reactions.
Next Wednesday brings the release of December's U.S. CPI data, followed by December's U.S. retail sales data on Thursday.
Markets will also focus on President-elect Donald Trump's Treasury Secretary nominee, Scott Bessent, who is set to appear before a U.S. Senate committee on Thursday. He might discuss trade tariffs, which have been a strong source previously of FX market volatility.
One-week expiry options would include these events, on top of today's U.S. jobs data, which is already demanding a very high FX volatility risk premium.
If actual FX volatility surpasses the implied volatility priced into a specific option before its expiry, the option could yield a profit, with the risk limited to the upfront premium.
The attached chart shows 1-week and 1-month expiry FX option implied volatility levels compared to their past historic/realised volatility measures.
On this basis, 1-week USD/CAD implied volatility is offering the best potential value, while 1-week EUR/USD might still be worth owning for those who think the impending events will be enough to generate more volatility than was realised over the previous 1-week.
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(Richard Pace is a Reuters market analyst. The views expressed are his own)
((Richard.Pace@thomsonreuters.com))
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