recently we had a
mini discussion about options.
just FYI, for those interested.
to illuminate us further about that topic at hand,
Sir Paul/gammase1 has generously shared this response over PM:
(his answers follow the phrases/sentences in
bold)
----------------
"EURUSD dealers report more trading of 1.44's this morning in London"
This means there a great deal of buying interest of call options on EURUSD, with a strike of 1.44, expiring Friday. Basically, providing protection post-NFP.
"
The well hyped Asian CB barriers at 1.4450 are due to expire around 22 September and should continue to cap any fresh advance"
This means that large amounts of spot transactions, selling EURUSD, are expected between now and 22 Sep, in order to keep spot below 1.4450, thereby ensuring the underlying related options remain in play. If spot moves above 1.4450, even for a brief second, any options with standard knock-out barriers set at 1.4450 will immediately terminate.
"1.44's and 13.5 level"
As mentioned above, the 1.44's are the strikes on call options, expiring Friday. The 13.5 level will be the
implied volatility that is used by option market makers in pricing options with this strike, expiring on Friday.
Implied volatility is the key ingredient in the pricing of options and managing the associated market risk that comes with managing a bucket of option trades.
The higher the actual (realised) volatility in EURUSD spot prices, the higher the predicted (implied) volatility will be for future periods. The higher the implied volatility quoted in the derivatives markets, the more expensive it is to purchase FX options.