In a true smile, options with an at-the-money strike are priced with a lower volatility than out-of-the-money and in-the-money volatility strikes. Such market occurrences are observable in the EURCHF FX OTC market.  

For instance, suppose we've constructed an at the money put option of EURCHF with near month expiries and with given maturities implied volatility has been around 8.26%, and that its delta amounts close to 54%.

We ponder now with an another put option with the same maturity with an implied volatility creeping up at 8.36% but its strike is 1% in the money (strike at 1.0830) and while its delta is just shy of 70%.

Furthermore, let's contemplate a 3rd option with a strike out of the money strike (1%) and a delta of 30% is also priced with a volatility of 8.68%.

Now just have a glance on delta risk reversal table that signifying hedging activities for downside risks are piling up. As a result ATM puts look more costlier.

So, comparing vols of all three put instruments with risk reversal table, we can empathize more downside sentiments seen in the FX option markets. Hence, risk reversals evidencing downside hedging is justifiable because we've highest probability (8.68%) to reach our OTM target.

On a 1-3m horizon, our target for this pair is still lower though we have adjusted our Q4 forecast (at 1.10) but certainly not with steep moves. Fundamentally, the latest quarterly SNB meeting also did nothing to change the currency outlook.

Although EUR/CHF reached a new post-floor high in the beginning September (at 1.1049), the pace of appreciation is painfully slow, Infact the fluctuation has been softened.

We have positioned for lower EUR/CHF in options with a risk reversal but the medium tenor (1m-3m expiring Dec 2015 or so).