EUR Vol: Gamma gains; Vega jumps

Gamma gains; Vega jumps
Euro implieds moved higher again today as the bearish momentum in Bunds continued with the 10y yield climbing to 2.60% (+7bps), the highest since mid-July. The rise in yields came as US Treasuries faced more selling pressure and global stocks declined.

In euro vol, the right-hand side of the grid continued to lead the gains with the surface seeing a further shift from left to right. For example, 3m expiries on the top left of the grid gained 0.1 to 0.5nvol whereas 3m30y jumped 7.3 to 90nvol and through the mid-July highs.

Reflecting on the jump in 30y gamma, one trader observed that, “It could be that positioning is to blame and dealers are scrambling a bit with desks quieter and having to move their prices.” He noted the move in 10s/30s was “still quite tame” with the curve last at -36.75bps (unch).

Further out, the move higher in forwards has lifted vega and seen a decent jump in pieces across the bottom right. For instance, 5y30y is up 3 normals at 77.7nvol, “We’ve moved in two sessions what we’d normally move in two weeks,” a dealer observed.

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.

High correlation and cheap corners - BNPP
In its latest vol research BNP Paribas reports high correlation and cheap corners through July. In the conclusion, it writes:

• “Vol ended July largely unchanged, with the exception of top-left and top-right which suffered most from low realised vol towards the end of the month.

  
  

• “Short-dated vols on the 1y tail offer appeal for tail risk hedging a portfolio.

  
  

• “The continued decline of 30y tail vol looks overdone and could rebound in the short-term, especially as term premium gains increase focus.

  
  

• “The move to pre-SVB highs in forward vs vol correlation could give an upward bias to risk reversals in areas such as 1y10y.”

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