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FxWirePro: Switch trades - Own buzzing USD calls against CHF puts

Owning USD calls/CHF puts or USDCHF risk reversals as long USD plays:

Unwind long EURCHF outright and rotate into long USDCHF via a risk reversal, which in conjunction with a pre-existing spot long in USDJPY, positions the portfolio for an ongoing improvement in the US economy.

Rotate long EURCHF into long USDCHF via risk reversal; keep EURUSD call spread, the much-awaited ECB meeting was modestly dovish and with it, Draghi was able to deliver euro weakening alongside a QE “taper” announcement for the second time in a year.

It is stated that USDCHF is one of the only two USD pairs (the other being USDJPY) where owning USD calls has been profitable on a delta-hedged basis since they earn smile theta along a risk-reversal that is bid for USD puts to reflect a premium for a 2015 franc de-peg-like SNB tail event.

In addition, long USDCHF directionally is a positive carry proposition, hence risk-reversals without delta-hedges lean long USD while earning both time decay and forward points.

The RV edge is that risk reversals are depressed via-a-vis ATM vols, which are themselves historically cheap relative to carry in forwards (refer above chart).

A 15’Dec17 (post-December FOMC) 1.01 / 0.98 risk-reversal costs 15bp premium (spot ref. 1.0008), has a very decent spot-to-strike distance ratio of the call and put legs of 1:2.5 and suffers negligible bleed till the final two weeks of its life.

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2017-11-23 16:31:32
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2017-11-23 16:30:58
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November 23 21:00 UTC Released

KRConsumer Sentiment Ind*

Actual

112.3 Bln USD

Forecast

Previous

112.3 Bln USD

November 23 19:00 UTC Released

AREconomic Activity YY*

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955 %

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-800 %

Previous

1755 %

November 23 23:50 UTC 105105m

JPForeign Bond Investment

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-105 Bln JPY

November 23 23:50 UTC 105105m

JPForeign Invest JP Stock

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Previous

182.4 Bln JPY

November 24 00:30 UTC 145145m

JPNikkei Mfg PMI Flash

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Forecast

Previous

52.8 bln $

November 24 09:00 UTC 655655m

DEIfo Business Climate*

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Forecast

116.6 %

Previous

116.7 %

November 24 09:00 UTC 655655m

DEIfo Current Conditions*

Actual

Forecast

125 %

Previous

124.8 %

November 24 09:00 UTC 655655m

DEIfo Expectations*

Actual

Forecast

108.9 %

Previous

109.1 %

November 24 09:00 UTC 655655m

ITIndustrial Orders MM SA

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Forecast

Previous

8.7 %

November 24 09:00 UTC 655655m

ITIndustrial Orders YY NSA

Actual

Forecast

Previous

12.2 %

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