EUR Vol: Uncertainty and positioning drive big reprice

Uncertainty and positioning drive reprice
Gamma implieds exploded this session having already burst higher on Friday on the back of the fallout from SVB. The 1m gamma expiries shot up to 25 normals higher and are around 30 normals higher since Friday’s open.

“Vol did not behave directionally today. Typically, a rate rally would put offers into vol but this is all about risk-off and uncertainty about contagion and the wider banking sector,” said one vol trader.

The EuroStoxx Banks Index declined by around -6.7% with the biggest fallers including Credit Suisse (-9.6%) and Commerzbank (-9.6%). Bank CDS spreads also widened sharply, again led by Credit Suisse, and front IMM FRA/OIS surged about 12bps. 

In the underlying, the EUR 10y swap slumped as much as 20bps to a low of 2.85% while the short-end saw white Euribors rally as much as 46bps at the close, in massive volume of over 600K for Sep23.

“Some clients were the wrong way around,” said one vol trader, referring to short positioning in parts of the gamma grid. “As to where the positioning was, he said it “depended on the client” but suggested some fast money accounts were short the top left, but not everyone.

Meanwhile, once source noted the focus has been across the grid, “It’s not just the top left or the top right. The belly is also a focus and the effect has been across the surface.”

Long dated vol firmed in sympathy with the price action in gamma but prints were reportedly less prominent. The perception was that some people were lifting offers they could find, even if it was in the long-end, just to cover something, according to one dealer. 

For euro option trades on the SDR see here and for volumes please see here. Note that the Total Derivatives SDR now shows broker/platform information for each trade, where available.

New structured issues

For a summary of recent structured issuance, see EUR MTNs.