Nov/Dec US Elections and Fed calendars dominate the vol landscape until year end, dwarfing NFPs as vol risk events.

On the option trade front among EMFX, we recommend positioning longs in USDZAR as the South African significantly overshooting fundamentals –

Long USDZAR portfolios that make buying USD vols all the more appealing. Instead of naked vanilla call form we suggest call spread structure for the 2M horizon, optimizing strikes for leverage.

In USDZAR, the 1M-2M ATM spread is below average at +0.75, as 1M vols had remained relatively anchored and never softened significantly.

Therefore the premium for owning US elections risk isn't punitive, and the short leg further mitigates the cost of gamma (see above chart).

The above table explains how does the call spread is ordered in decreasing values of max payout/cost regardless of upswings.

We find that skews aren’t steep enough vs ATM to allow for a wide range of strikes to be efficient. In order to ensure more than 50% discount to the outright vanilla, and a max payout/cost higher than 3.5:1, one needs to choose a combination of long 40D vs 25D.

The call spread achieves a 55% discount to outright call and a max payout/cost ratio of 3.7:1 (mid values).

Please be noted that the tenors and strikes shown in the diagram are only for demonstration purpose, use appropriate tenors as suitable for your exposure.