As you can observe from the above graph is evidencing the beginning of the divergence between historic vols and implied vols.
The ATM IVs across all tenors have been shrinking as a result of significant Brexit event is done and it is now all about competing with the time factor.
As the vega and theta are flashing higher numbers on OTM put strikes while comparing that with shrinking vols, it would be a perfect time for shorting overpriced options.
Thereby, the approach we like to adopt to take advantage by trading implied volatility is through shorting Vega on OTM stikes.
In particular, not only should the risk premium in the FX market fall, but the environment will not support the emergence of new trends.
Moreover, we expect EUR/USD to stay confined within the large 1.05-1.16 range holding since March 2015.
Volatility peaked during the euro fall that began in 2014, but though the range was relatively turbulent initially, EUR/USD realized volatility is now going down.
The market can’t keep buying volatility in a trendless market and with limited central banks shifts expected in the coming months.
Hence, the recommendation would be the buy on EUR/USD 6m double no touch, knock-out 1.05-1.16 Indicative offer: 15% (at spot ref: 1.1052)
Risks: Limited to the premium. Investors buying a double no-touch option cannot lose more than the premium initially invested. However, it will be knocked out if EUR/USD hits 1.05 or 1.16 at any time before the 6m expiry.


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