Market Outlook:  Less Volatile

IVs of EURCHF ATM contracts have still been lacklustre, 4.55% for 1W expiry (the least among G20 currency space). and doesn't seem to have drastic change in near terms that would never impact in option premiums. Datawise. with no economic releases today in euro area, market focus may start turning to Greece again in next week.

As we foresee narrow range trend is puzzling this pair on both daily and weekly charts.

At current spot at 1.1113, the pair has been oscillating between the range of 1.1199 on north and 1.0732 on south. So, with range bounded trend, shrinking volumes ensures this range (while prices are bouncing) which means the buying sentiments are reducing when prices are rising.

Elsewhere, in OTC markets, see for negative hedging sentiments again in next 1 month's timeframe, while the least IVs keeping in consideration we would like to remain in safe zone by achieving certain returns though shorting a strangle.

Hence, capitalizing on above aspects, especially risk reversal adjustments, 

Short  1W (1%) OTM Put and (1%) OTM Call with positive or theta closer to zero.

Margin is required to initiate above positions.

Trade the expectation of shrinking volatility without taking a view on direction. A strategy commonly used when there is no major economic announcements and events.

The OTC options market appeared to be more balanced on the direction for the pair over the 1m to 1y time horizon as hedgers have been cautious on long term downtrend that has lasted since mid April 2013 and as a result delta risk reversal for EURCHF was turning into negative.

The return are certain as long as the underlying spot FX remains between two strikes.

More losses for the strategy can be experienced if the underlying spot price makes a strong move either upwards or downwards at expiration.

Cash inflow would be certain as volatility decreases and the value of both options will decrease as the volatility rises.

Shorter tenors desirable as the value of both options decay each day that passes.