Please be informed that the 1w implied volatilities of EURCHF ATM contracts are rising above 7.25% but have still been the least among G10 currency segment across all expiries.

While the negative 25-delta risk of reversal of EURCHF has also been indicating the mounting bearish risk sentiments, which means the puts have been relatively costlier. As a result, any exorbitantly priced put options could be written off in any optimized costing of the option strategy.  

Option trade recommendations:

Well, as we all know that the EURCHF’s range bound pattern is still persisting but some bearish candles are indicating slight weakness on both weekly and monthly charts, (Ranging between upper strikes 1.1110 and lower strikes at around 1.0725 levels).

But as we recently stated in our technical write up, the bulls gaining traction for more upswings so that one could still foresee range bounded trend to persist in future but little weakness on weekly charts is also puzzling this pair to drag mild southward targets but very much within above stated range.

Hence, amid the low volatility circumstance we reckon that the short put butterfly is the most suitable that keeps a neutral stance on underlying spot FX.

The execution: Go long in 1m ATM -0.49 delta puts, while shorting 1w (1.5%) ITM Put and short one more (1.5%) OTM Put of the same expiry.

The strategy expects bullish on volatility while fetching limited returns and carry limited risk.

Risk/reward profile:

Maximum returns are attained for this position as long as the underlying spot FX rallies pass the higher strike price or drops below the lower strike price at expiration.

If the EURCHF spot ends up at the higher striking price, all the put options expire worthless and the trader keeps the initial credit taken while initiating the trades. 

On the contrary, the EURCHF at expiry is equal to the lower strike, the lower striking put option expires worthless while the "returns" of the remaining long put is canceled out by the "loss" incurred from shorting the higher strike put. So the maximum return is still only the initial credit taken.