The euro has moved somewhat away from its highs, but this is not yet noticeable in the implied volatilities. Compared to the last Market update, impl vols have fallen between 1.25 (2m) and 0.75 (1y) percentage points. On the one hand, this shows that the market's risk sentiment has obviously improved. On the other hand, the market seems to be slowly locating the euro at a more stable higher level. The risk of renewed parity has been priced out somewhat. This can be seen especially in low delta puts, which are trading about 1.75% percentage points (10 delta) lower today than at the last reporting date.
(source: cme group, own representation)
I am not convinced by this narrative and stand by my opinion, which has been expressed here many times, that the euro will once again approach the 2022 year lows. In this respect, the impl Vols shown in the table (quotes at 08:05 NY time) offer good opportunities to buy hedges comparatively cheaply. All longer ATM maturities from two months to one year are quoted well below 8%. I am particularly surprised about the quite cheap tenors over six months.
(source: data from table, own representation)
But the shorter maturities are also interesting. Here I mean in particular the 1-month term that goes beyond June 1. After all, the “possibility of an US default on its debt” (Morning Call #146) at that time is discussed intensively in the media. At least the EURUSD options market obviously does not see any major problems and quotes the impl Vols maturities up to one month almost flat at below 7%. The Volatility Surface above illustrates the nonchalance well.
For active traders, I therefore advise 1-month options (hedged), which are undervalued in my opinion for the reason given above. If the general risk sentiment deteriorates, short maturities in particular are likely to rise quickly. For investors with real dollar needs, I rather recommend maturities between 6 and 12 months depending on the underlying transaction. I consider all maturities to be comparatively cheap.*
Good luck,
Sebbo
(*reminder: my content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances.)