IFR Markets [FX Option Implied Vol Updates]

I have been doing some FX Options study recently an I am stumped at how to read this. These are outut on Oanda News several times a day. IFR Markets [FX Option Implied Vol Updates]
What does this mean. For instance EURO/usd 12.65 - is that a cost for the option - at what price? Any help or web site would be appreciated. I can find info on options - but am looking for more info specific to this news item.

I have located the following paper that may be of interest to any others that may be interested in these news items.
http://ideas.repec.org/p/mnb/opaper/2005-39.html

Abstract
Market analysts and central banks often use the implied volatility of FX options as an indicator of expected exchange
rate uncertainty. The aim of our study is to investigate the limits of this statistic. We present some key factors that may
deviate the value of implied volatility from the exchange rate variability expected by the market. These biasing factors
are linked to the simplifying assumptions of the Black-Scholes option pricing model. Our empirical results show that
forint/euro implied volatilities carry useful information about future exchange rate uncertainty when the forecast horizon
is shorter than one month. However, implied volatility provides a biased estimate, and does not encompass the informa-
tion included in other (GARCH, ARMA) predictors of volatility calculated from historical exchange rate data. These results
are in line with the findings of similar analyses of other currency pairs.

Ive only breifly looked in to IV before, the basic idea is the lower IV means that the option is cheaper to hedge.

http://en.wikipedia.org/wiki/Implied_volatility << If you havent already read this then It may help.

PS. Or so I thought, reading back through it now has me a little unsure.

Mr G, volatility is part of the formula to cost up the option in the first place. From the price of options actually traded in the market then, it's possible to calculate the value of volatility used to create the option price - thus it's implied vols (implied by the price it sold at). So the figure shown is volatility, not the price of the option.

In general terms, if short-term vols then are lower than long-term vols, it means the market is expecting a break-out, and if vice versa, it'll move back to a range. In your table, EURUSD short term vols are lower than the longer-term vols, so the market is expecting a breakout. That's the rough theory anyway...

I found a useful way to get the output from Oanda News into an electronic form that can be kept long term for tracking purposes etc.

I used the following method to setup a generic text printer. Then print and name it the same as the news item.txt (use .txt extension for file)
Then I open the file in Word. You can use Notepad but it has a bunch of little squares and stuff. At least now I can generate the information and store it for future reference.
One tip - I bolded the important piece. After you have finished install of printer and when you go to print an actual news item - select this generic/ printer - but do not click the box to 'print to file' - when u click OK - you will be prompted to name the file. - then can name anything you want. I am attaching a file - download it and open in word for an example of how the output looks. Open in Notepad for comparison.


Depending on the program whose output you're capturing, you may find it worthwhile to install and use the Generic/Text-Only printer. Click the Start button and choose Printers and faxes from the menu. Under Printer Tasks at left, click Add a printer. As you step through the pages of the Add Printer Wizard, choose Local printer attached to this computer but uncheck the option to detect it automatically. When it asks what port to use, choose FILE: (Print to File). Then select Generic as the manufacturer and Generic/Text Only as the printer model. When you've completed the wizard, you'll have a new printer to choose from in the standard Print dialog. Try printing from your program to this printer; then open the resulting file in Notepad to check the results. Some programs, especially older ones, will produce useful text-only output.

Leon, Triphop -Thank you - Leon - Your post w/ the formula and Triphop, your post that this is just a piece of the formula really helps my understanding. I can be thick sometimes and need it presented several ways sometimes before I understand.

Now to figure out a means of exploiting this - maybe in the 'Binary Option" thread - can be found additional clues. Seems to me there may be more info there than meets the eye.

http://www.raw.at/galerie/images/com..._and_brain.gif

This is very useful for me thanks MrGreen, I intend to write a system to import these text files automatically to a database to have a better view of the option levels.

where did you get that table in Oanada News?