The option expiries for May 9 NY cut at 10:00 Eastern Time, via DTCC, can be found below.
For EUR/USD, the amounts in EUR are as follows:
– At 1.1025, the amount is 628 million
– At 1.1115, the amount is 581 million
– At 1.1200, the amount is 550 million
For GBP/USD pair, the amounts in GBP are:
Please note that these option expiries, set by the Depository Trust and Clearing Corporation (DTCC), can have a significant impact on the currency markets. The expiration point can create additional volatility in the market if the spot price is near the expiry level, particularly if it contributes to new buy or sell orders. This article will offer a brief overview of foreign exchange (FX) options and their impact on currency markets, particularly pertaining to these option expiries.
What are FX options?
An FX option, or currency option, is a financial contract that gives the buyer the right, but not the obligation, to buy or sell one foreign currency against another at a specified exchange rate, called the strike price, on a specified expiration date.
Typically, an FX option exercisable on any day during the trading period until it expires is called a European option, and an option exercisable only on the expiration date is called an American option. European options are more widely used in the currency markets. The two main types of FX options are call options and put options. The owner of a call option has the right to buy the underlying currency at the strike price, whereas the owner of a put option has the right to sell the underlying currency at the strike price.
FX options come in different forms, including over-the-counter (OTC) and listed, with the former being the dominant market. While listed options have standardized terms and trade on designated exchanges, OTC options can be customized to suit individual requirements and are made directly between the buyer and seller.
How do option expiries affect currency markets?
FX option expiries can have a significant influence on currency markets. Here’s how:
1. Pricing: If the market is relatively quiet and there is uncertainty about future price movements, option sellers may offer interesting strike prices to attract buyers. Consequently, if the strike price is near the spot price, expiration-related activity could increase market volatility and potentially impact the direction of the underlying currency pair.
2. Volume: Since options expiry information is widely available, it could lead to speculative trading in the spot market, which could be focused around the expiration level. This increased volume can lead to large price swings and create short-term trading opportunities.
3. Hedging activities: Large option holders might attempt to hedge their exposure before expiry to protect themselves from adverse price movements. For example, an option buyer might sell the underlying currency in the spot market if the option is a call, or buy it back if it is a put, in order to protect their FX risk. Hedging activity around option expiries could, therefore, affect the underlying currency prices and create short-term price volatility.
How can investors utilize option expiries for their strategies?
In order to take advantage of the impact of expiring FX options on currency markets, investors can consider the following strategies:
1. Monitor option expiries: Understanding option expiries and their impact on currency prices can be a helpful tool for traders. Be aware of upcoming large option expirations and plan your trading strategies around these potential market-moving events.
2. Spot trading opportunities: Expiries can lead to price spikes, providing investors with an opportunity to place short-term trades. By monitoring option expiries and their impact on the underlying currency markets, traders can identify and capitalize on potential trading opportunities.
3. Gauge market sentiment: Identifying which option contracts are more active can provide clues about the overall sentiment of the market. For example, if call option contracts with a higher strike price are more active, it could indicate bullish sentiment, whereas active put option contracts with lower strike prices could suggest bearish market sentiment.
In conclusion, understanding how expiring FX option contracts and the subsequent activities surrounding them can have a significant influence on currency markets. By closely monitoring option expirations, investors can better understand market trends, spot trading opportunities, and assess the overall market sentiment.