Options market shows insider alarm on 'Frexit' upset

Polls show Leftist insurgent Jean-Luc Mélenchon would beat the conservative François Fillon in a run-off, giving markets fresh cause for worry

The financial derivatives market is flagging mounting concern over the first round of the French elections on Sunday, with a surge of interest in options used to hedge extreme outcomes.

One-month ‘risk reversals’ on the euro - a gauge of demand for protection against a sudden plunge in the currency - have reached the most extreme level since the height of the eurozone debt crisis in late 2011.

This suggests that an informed core of hedge funds, banks, and traders are sufficiently concerned about an upset result that they are willing to pay a large premium for ‘put options’ on the euro, even though the euro exchange rate against the dollar is showing no sign of stress.

Simon Derrick from BNY Mellon said this replicates the pattern before Brexit. “The price action feels to me like last summer. The pound was rising just before the referendum but people were hedging Brexit risk on the options...

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