GBPCHF back-end volatility: 1Y -2Y GBPCHF straddles strike us as an excellent defense against Brexit chaos, for a few reasons:
1) GBPCHF vols have retraced nearly all the way back to their post-referendum lows (refer above chart), so appears to price in the sort of benign post-Brexit scenario that unfolded in Q3’16.This complacent vol pricing owes in large part to elevated GBP vs. CHF correlations via USD (north of 50%) thanks to the post-US election broad-based dollar surge but is prone to a sharp breakdown either in the event of idiosyncratic UK political stress and/or a broader risk aversion.
2) at 10.4 in 1Y and 10.6 in 2Y (mids), GBPCHF offers relative value edge over vanilla GBPUSD vols that trade 8/10th of a vol over, even though long run historical beta between the two is nearly 1. This relative pricing reflects the current regime of CHF inertness driven by persistent SNB intervention in the franc and is locally fair vis-à-vis day-on-day realized spot volatility, but not for a less orderly environment of above-average spot moves when local elasticities can come unhinged.
After Q1’15's de-peg experience, it is prudent to be long protection against discontinuity risk in SNB’s currency policy, especially when it does not entail paying a material premium;
3) While daily realized volatility in GBPCHF is not remarkable, the mild slope of the 1Y-2Y vol curve mitigates theta decay, which in any case is not onerous for options that far out in tenor.


2025 Market Outlook: Key January Events to Watch
Stock Futures Dip as Investors Await Key Payrolls Data
Fed May Resume Rate Hikes: BofA Analysts Outline Key Scenarios
China's Refining Industry Faces Major Shakeup Amid Challenges
U.S. Stocks vs. Bonds: Are Diverging Valuations Signaling a Shift?
Lithium Market Poised for Recovery Amid Supply Cuts and Rising Demand
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data
Mexico's Undervalued Equity Market Offers Long-Term Investment Potential
Indonesia Surprises Markets with Interest Rate Cut Amid Currency Pressure
Goldman Predicts 50% Odds of 10% U.S. Tariff on Copper by Q1 Close
Moldova Criticizes Russia Amid Transdniestria Energy Crisis
Energy Sector Outlook 2025: AI's Role and Market Dynamics




