FX Options Insights 15/1/26
On Thursday, FX options implied volatility saw a dip, with the lack of movement in spot markets keeping pressure on shorter-term expiries. USD/JPY, after retreating from its recent highs in the mid-159 range, has caused the volatility curve to ease. The 1-month implied volatility fell to 8.8, down from its peak of 9.3, though it remains significantly above last week’s low of 7.4 following the U.S. jobs data release.
This week, risk reversals have leaned slightly in favor of JPY call options over puts, signaling concerns about potential downside risks for spot prices and reflecting hedging activity amid growing intervention speculation. JPY calls would benefit if authorities step in to intervene but lose value if spot prices stay elevated—making timing a critical factor for these trades. Meanwhile, USD/JPY bulls who believe intervention is unlikely have been favoring JPY put/USD call RKO options as a cost-effective strategy.
In GBP/USD, the pair appears technically fragile below the 1.3500 level. This has led to selling of higher strike options, with some desks promoting bearish GBP strategies. Despite this, 1-month implied volatility has eased from the week’s peak of 6.3 to 5.8, ahead of the latest spot price pullback.
Over in EUR/USD, the pair’s gradual decline has kept implied volatility subdued. The 1-month vol has slipped to new 2026 lows, hovering around 5.1. While longer-dated expiries are holding up slightly better, the overall curve remains under pressure. Risk reversals are now approaching neutral territory from previously favoring EUR puts. A shift toward a downside premium could provide some support for volatility if EUR/USD continues its slide toward the key 1.1500 support level.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!