Owning TRY vol is easier said than done though on account of elevated vol levels, steep curves and high risk-reversals. Our work around is to buy 1Y options financed by selling 2Y (to exploit the steep upward slope of the 1Y/2Y curve).

Currently, the pair is struggling at 3.0375, for now, 3.0405 (stiff resistance) would be the upside bracket and 2.9875 is what we could slip in maximum downside drag, but projections for USDTRY remains at around 3.20 by mid-2016.

To buy ATM strikes vs. sell 25D USD calls (short skew) in weighted amounts (OW 1Y) in a way that still leaves the resulting box spread net long a substantial amount of gamma and a small amount of vega.

Long USD/TRY 1Y ATM vol vs. short 2Y 25D USD calls/TRY puts, 150:100 vega ratio (delta-hedged): Turkey's macro vulnerabilities are fairly projected, a bulky Turkish CAD, too much dependence on overseas portfolio financing, 7%+ inflation.

The hangover of a post-GFC domestic credit binge and political uncertainty all combined to deliver a 21% decline in the lira this year, we could still foresee another 8% pencilled in for 2016.

The short risk-reversal bent can potentially hurt in a vol spike, and we are cognizant of the fact that 2Y forward points typically out-deliver 1Y in stress, but even accounting for those factors.

The box spread has historically delivered a superior return profile vis-a-vis outright 1Y vol - less attenuated P/L spikes but greater retentivity through a broad vol uptrend over the past 12-18 months (chart 13) thanks to material carry savings from skew selling.