In a note to clients on Monday, Robert Savage, chief strategist for currency market-focused hedge fund manager CCTrack, laid out the case for the absence of macro tremors among options traders.
"Imagine a kindergarten without paper, glue or glitter," he said. "No fun, but no mess — we are in that kind of market organised by strict teachers called central bankers intent on market stability and herding the risk assets in one direction, up."
But others believe that attractive trade opportunities still exist. According to Amrut Nashikkar, an interest rate strategist at Barclays, low implied volatility on short European rates provides attractive front-end divergence trades. He also recommends taking advantage of the difference between front-end dollar and euro volatility to buy long Europe/short US divergence exposure.
"In the US, implied volatility on long tenors came off over the past week, likely on the back of a near term reduction in uncertainty with regards to Greece" said Nashikkar. "The drop in volatility was led by gamma on long tails, which had risen the most on heightened uncertainty."
As the dust settles in Europe after a last minute deal in Greece and a slide in Chinese equities appears to have halted, volatility across options markets globally have quietened rapidly.
The CBOE/CME FX Euro Volatility index has dropped below 10.50, after reaching highs above 15 in June. This comes after “fear gauge” index the VIX plummeted from above 19 in July — its highest levels since February — to below 12 on Thursday last week, its lowest level of the year.
And gold spot markets traded at five year lows on Monday, with the metal falling more than 3% from Friday’s open as recently placed "safety trades" continue to unwind.
The European Systemic Risk Board annual report, released last week, noted that there appeared to be limited contagion to Europe’s other Economic and Monetary Union countries from Greece. But board analysts noted that sovereign debt crisis risks were higher than one year ago.
