FX Vol Insight: Spread the word: vol ideas in GBP and SEK

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FX Vol Insight: Spread the word: vol ideas in GBP and SEK

Second, to find pairs where elevated levels in skew makes a directional view attractive

to express through risk reversals. This is the case when the above-mentioned conditions

are true, but the investor’s underlying view is in the opposite direction of the skew. In

this case, fading the skew is more attractive than using it to finance a spread as skew

may then start normalize when spot moves against it.

Two trades from the spread screener:

The optimist’s trade: Fade elevated EURSEK skew

The EURSEK call spread provides the highest “% of distribution/bps paid” ratio among

all spreads in the screener. The same is true for the difference between the portion of

the pair’s distribution covered between call and put spreads. This indicates that skew in

the pair is comparatively high vs the rest of G10, and that it is an interesting pair to

express both a bullish and bearish view on through skew structures.

However, we interpret this as an opportunity to fade the elevated topside skew rather

than using it to finance a call spread. Recent spot-to-vol correlations indicate that the

levels in vol adjusted skew may start decreasing soon (Exhibit 19, Exhibit 21).

Additionally, SEK has lagged the other high betas since the ceasefire, despite being the

hardest hit currency by the US/Iran war. In our view, this suggests SEK has more room to

catch up than its peers if a peace deal materializes, making short EURSEK through 3m

risk reversals our preferred de-escalation trade (FX Alpha, 7 May ’26).

The pessimist’s trade: GBPUSD put spread

Except for the Scandies, GBPUSD has the highest dislocation among pairs in the USD

block between % of distribution covered by call and put spreads. Additionally, it is one of