FxWirePro: Dollar curiosity in December keeps IV higher - EUR/USD vega spreads to trade HY vols

USD has been waiting for December month very cautiously, we reckon dollar is likely to be supported next week as the FOMC minutes (Wednesday) validate the readiness of the board to begin the monetary normalization cycle as soon as December.

With fed fund futures already pricing about a 70% chance of a hike this year, we would expect a modest upward move in the USD as the market fully prices in December as the lift-off date.

Inflation on Tuesday should point in the same direction, showing core CPI running close to 2.0% YoY with strong readings in service related sectors, which will probably stay near 3%.

Finally, on the same day, we expect manufacturing production to show an increase of 0.2% MoM despite continued USD strength. Overall, we remain constructive on the outlook for the US economy.

As you can see from the nutshell showing implied volatilities of ATM contracts (EURUSD of next month's expiries show 11.75% which is the highest among G20 majors).

With consistent losing streak of EURUSD, we recommend on speculation basis buying one touch vega puts in order to extract leverage on extended profits.

So by employing these Vega options one can not only multiply the returns by twice, thrice or even pour returns unimaginably but also upbeat the implied volatility. But do remember this call is strictly on speculative grounds.

The prime merits of such one touch option spreads are high yields during high volatility plays. Wider spreads indicates lack of liquidity.

The spreads for one touch EUR/USD options are constant time and barrier levels. We believe one touch Vega spreads can be the best suitable options to trade HY vols.

Usually, such binary options for every change in 1 pip the relative change in option price 0.01% or even exponential at high implied volatility times.