EUR Vol: Keep calm and carry on?

Longer road 10 Nov 2020
The underlying was volatile but implieds finished the session lower.

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Keep calm and carry on 

The ECB hiked rates by 50bps to 3.50% in a decision that was not universally expected following the recent fallout from Credit Suisse. Ahead, the Governing Council stressed that future rate decisions will be data dependent. Meanwhile, in the press conference Lagarde said the ECB does not see a trade-off between preserving price stability and financial stability given the different tools available.

In the market, another rollercoaster session is finishing with white Euribors trading 10-15bps lower while red Euribors are almost unchanged. The 10y Bund future was last down 130 ticks following a 216 tick intra-day range and the euro swap curve is steeper.

Euro implieds began the session offered and the descent continued after the ECB meeting, leaving the top left and gamma roughly 10 to 15 normals lower, thus taking back much of yesterday’s gains but still elevated compared to a week ago.

One vol trader reckoned the market was feeling calmer today despite the wild swings in rates, “The view being pushed is to try and stay rationale. The SNB has provided liquidity to Credit Suisse and the ECB has stated it stands to ready to act. We’ve been here before (in 2008) and have the necessary tools in place.”

That said, he was not convinced it was all downhill for vol from here, “The screens may be marked lower but I don’t think you are going to get many people selling into the weekend,” he reckoned.

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.