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Just glance through the implied volatilities of EURCHF ATM contracts from the above nutshell, IVs of this underlying pair of all expiries have still been the least among G10 currency segment despite this week’s G20 meeting and flurry of data announcements, such as, French, German & composite PMIs, German’s ZEW sentiment, current account balance which are significant. These lower volatile conditions are conducive for the option writers.
Let’s be noted that the skews of EURCHF have not been indicating any dramatic shoot up nor any slumps, but bearish neutral risk reversals indicate that this pair to have been hedged for the downside risks as it indicates puts have been relatively costlier.
The persistent euro strength should nudge EURCHF higher but significantly. As a result, chances of calls being priced exorbitantly. 1w IV skews have been well balanced on both OTM call and put strikes.
Please observe that the minor trend of this pair has been drifting in the tight range of 1.1750 and 1.1650 levels (refer rectangular area in daily technical chart). As a result, we recommend below option strategies using right options, thereby, one can benefit from certain returns.
Naked Strangle Shorting:
Short 1w OTM put (1% strike difference referring lower cap) and short OTM call simultaneously of the same expiry (1% strike referring upper cap) (we reiterate, comparatively short term for maturity is desired).
Overview: The sideways trend but slightly bearish in short term.
Timeframe: 1-week
When you write an option, the seller wants IV to remain lower level or to shrink so the premium also fades away.
Hence, writing such calls seems smart choice in tepid IVs on speculative or trading grounds.
Considering above OTC market reasoning, amid prevailing bullish risks in the major trend we think downside risks in minor trend cannot be disregarded, as result we reckon deploying shorts in such exorbitant call options.
Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards -9 levels (which is neutral), while hourly CHF spot index was at a tad below -1 (neutral) while articulating (at 11:22 GMT). For more details on the index, please refer below weblink:
http://www.fxwirepro.com/currencyindex.
These currency indices are conducive to the above-mentioned options strategy.
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