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EUR/USD: Options market turns bearish on EUR

  • EUR/USD puts are drawing bids amid the slide in the common currency. 
  • Put options (bearish bets) are claiming the highest premium in nearly four months.

EUR/USD's options market recently turned bearish on the common currency. Notable, the premium claimed by the put options (bearish bets) is now the highest in nearly four months. 

One-month risk reversals (EUR1MRR), a gauge of calls to puts, crossed below zero on Feb. 10 and fell to -0.425 on Friday, the lowest level since Oct. 29, 2019. 

A reading above zero indicates the premium claimed by calls (bullish bets) is higher than that for puts while a below-zero figure is the result of a higher volatility premium on puts.

Therefore, the recent drop below zero represents a bearish shift in the market sentiment and Friday's drop to -0.425 indicates the demand for or the premium claimed by put options has hit the highest since the end of October. 

Put simply, investors are positioned for a deeper drop in the common currency. EUR/USD topped out near 1.1095 at the end of December and fell to multi-year lows near 1.0830 on Friday. At press time, the pair is trading at 1.038 with the short duration technical studies signaling oversold conditions. 

EUR1MRR

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