EUR/USD: Were Option Traders Caught On The Wrong Side Of The Trade?

The EUR/USD is losing altitude fast on heightened political uncertainty following German Election results. The pair dropped to a one-month low of 1.1810 levels in Europe.

Daily chart

• The chart above shows head-and-shoulders breakdown.
• At press time, the spot is chipping away at the support offered by the trendline sloping upwards from the May 11 low and June 20 low.
• The 14-day RSI has turned bearish and is sloping downwards, signaling more losses ahead.
• An end of the day close below the rising trend line support of 1.1810 would add credence to the bearish head-and-shoulders reversal and shall open doors for 100-DMA, which is seen sloping upwards to 1.1660 over the next few days.

Option traders trapped on the wrong side of the trade

• The open interest in the Calls increased by 700 contracts on Monday, while Puts added a meager 183 contracts.
• The sharp rise in the open positions in Calls usually indicates bullish bias. However, it should be noted that EUR/USD was already on a weaker footing yesterday, courtesy of Merkel's weak victory in elections and the rise of the far-right wing AfD party.
• Also, a big rise in the open positions in Calls at or near market tops usually indicates overly bullish sentiment.

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• Options data suggest Investors are overly bullish on the EUR
• An unwinding of long call positions could gather pace if EUR breaks below 1.18 handle, thus leading to a bigger drop in the pair.