FX options skew shifts wildly amid fragile geopolitical conditions

Foreign exchange options markets are experiencing unprecedented volatility in calls-versus-puts demand as dealers struggle to balance positions amid heightened geopolitical tensions. The options skew, measuring relative demand between calls and puts, has been flipping dramatically in response to geopolitical events, creating challenges for market makers. This instability is particularly pronounced in safe-haven pairs like USD/JPY and USD/CHF, where implied volatility has surged 15-20% above historical averages. Risk reversals in major pairs show extreme readings, with EUR/USD 25-delta risk reversals swinging from -0.5 to +0.8 within days. The fragile market conditions have led to wider bid-ask spreads and reduced liquidity, especially during Asian trading hours. Options dealers report difficulty in maintaining delta-neutral positions, potentially amplifying spot market moves. Traders should expect continued volatility spikes and possible gap moves in major pairs as geopolitical uncertainties persist.