Euro Option Traders See Quietest Christmas Since Currency Began

Troubled that increasing illiquidity in the euro could widen its recent range versus the dollar and upset your Christmas? Option pricing seems to have a straightforward answer: don’t be.

In the run-up to the holiday season, and especially in the days around Christmas, liquidity in the market drops considerably, increasing the risk that a currency faces abrupt moves even on small volumes. This time around, option traders have little, if any concern, that this will be the case.

One-week implied volatility in the euro-dollar dropped for an eighth day on Tuesday and traded as low as 4.73 percent, a level unseen since August 2014. A close below 5 percent would mark a record low for this time of year since the euro came into circulation.

One-week structures expire on Dec. 26 and thus capture the tax reform vote by the House of Representatives and the Senate, alongside a series of tier-one U.S. data including gross domestic product, durable goods, income and spending numbers, and the Federal Reserve’s preferred gauge of inflation.

Still, option pricing suggests you can safely focus on stuffing the turkey.

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