(Bloomberg) -- Options traders in the ruble may be mispricing the risk of an escalation in tensions between Russia and Britain.
Implied volatility on one-month dollar-ruble contracts held near a five-week low even after U.K. Prime Minister Theresa May publicly accused Russia of a chemical weapon attack on British soil and warned of retaliatory measures. Potential steps she may consider include seeking more European Union-wide sanctions and cutting Russian banks off from the Swift bank payment system.
Dollar-ruble risk reversals also suggest that a potential U.K. reprisal isn’t yet being seen as a game changer. The premium to buy one-month call options on the dollar versus the ruble relative to puts was at about 2.22 percentage points on Tuesday, holding near a two-month low. By contrast, the difference reached almost 16 percentage points in January 2015, when the EU extended sanctions.
The market may be complacent after the Republicans who control the U.S. House Intelligence Committee said they found no evidence of collusion between President Donald Trump’s campaign and Russian operatives. Still, traders may get more nervous if tensions escalate once again. U.S. Secretary of State Rex Tillerson has called the poison attack an “egregious act” that will trigger a U.S. response, showing the potential for a global reaction.
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