FxWirePro: Swiss franc gets frank with EUR/CHF bears – Stay short via put options bidding 3m RRs and Skews

All those who fear a strong franc, above all the Swiss National Bank (SNB), should be just as nervous at the moment as regards Brexit. EURCHF is once again approaching last year’s low just below 1.12, driven of course by increased risk aversion as a result of global economic concerns.

In case of a hard Brexit, the 1.10 level is likely to be reached very quickly again. And in fact, we would then expect the SNB to intervene on the markets, preventing a stronger collapse of the EURCHF exchange rate. It is likely to achieve that as long as the situation stabilizes again quite quickly, which is quite possible as the negative real economic effects of a hard Brexit are likely to be more manageable than many fear.

OTC updates and trade recommendations: (Short in EURCHF via ITM put options, spot reference: 1.1223 levels). 

EURCHF bearish neutral risk reversal numbers and positively skewed of implied volatilities of 3m tenors signify the bearish risks to prevail further. 

25-delta risk reversals indicate the difference in volatility, and therefore price, between puts and calls on the most liquid out-of-the-money (OTM) options quoted on the OTC market. Negative bids indicate puts are more expensive than calls (downside protection is relatively more expensive). 

Accordingly, we advocate 2m (1%) in the money -0.79 delta put options, the rationale for choosing such derivative instrument is that the in the money put with a strong delta would move in tandem with the underlying downward moves. Courtesy: Sentrix, Saxo & Commerzbank

Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards -168 levels (which is bearish), while hourly CHF spot index was at -77 (bearish) while articulating (at 13:10 GMT).

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex