Short volatility structures are appealing given the high cost of implied versus realized vols. Limited loss structures are also preferred. Since August 2015, the historical probability of the USDCNH breaching the knock-out windows (see below) over a 3m window is 45% and, after a 2% retracement from the peak (like currently), it is 48%. Given that a double no touch structure provides a substantially higher payoff (8 times), we believe the risk-reward is compelling.

Buy USDCNH 3m Double No Touch, knock-out 6.74/7.00 Indicative offer: 12% (spot ref: 6.8519) Maximum payoff is 7 times.

The barrier levels are chosen such that the USDCNH stays below the 7-handle and does not trade meaningfully below the 6.78 technical level (38.2% retracement level from the March low and 61.8% from the September low).

Risk profile: The maximum loss is premium paid The maximum loss is limited to the premium paid in the event that the USDCNH trades above 7.00 or below 6.74 at any time during the life of the option.