FxWirePro: Trade EUR/CHF ratio spreads on low IV

It would be more efficient to devise a call when we synthesize our trend analysis, momentum and targets with 2 or multiple indications, be it technical or fundamental or both. Such has been the case below is the lively instances.

ATM volatility: While IV is also perceived to be least among major currency ATM pools in the OTC market. So the active traders can speculate prices freely in until next 6 months timeframe. Lower volatility is good for bulls because if any abrupt disruption arises in EURCHF then the low IV implies the market thinks the price will not dip much. Since delta risk reversal shows gradual increase in negative values, what we could infer from this is that it indicates puts are more expensive than calls (i.e. downside protection is relatively more expensive).

On weekly charts the momentum indicators are now signaling weakness in this pair and this was observed in conformity to the substantial volumes, we see more down side potential back again because of which longs should be depleted and call ratio spreads are to be deployed. But this would only for short term basis, the downswings which we don't want to miss.

"Never rely on single indicator is our fundamental" as legendary saying by Warren Buffet goes this way "Never test depth of the river with both the legs."

Why call ratio spread: Use this strategy in a neutral to bearish environment when you expect decreasing volatility and EURCHF to remain range bound, when you are looking to generate income.

Currently, spot EURCHF is trading at 1.0822.
Buy one 1M ITM delta 0.50 call striking 1.0774 and Sell two lots of 7D OTM calls striking 1.0921.

Advantage: if the pair drops down below or stagnant in short run for next 7 days and then start bouncing up, net credit earned can be a certain profit and longs would yield limited returns. Hence, range bounded movement is desired and we think our lower IV hinted this desirable outcome in future.

Risk/Reward profile: The risk is unlimited. The reward is the difference in the strike prices plus the net credit, multiplied by the number of long contracts.