TRY and ZAR are the currencies that seem to be making a huge buzz out of the proportion among OTC opion markets of EMFX space, one could have skepticism whether these sentiments are reasonable or not.

Please glance through that the ATM IVs of USDTRY and USDZAR of 1m tenor are spiking crazily above 18.39% and 20.25% respectively. We find option exposures most attractive at present, with implied volatility and skew trading near their lowest levels in a year when we’ve been constantly maintaining longs in USDTRY call since 7th November (USDTRY vol has recently spiked higher following the global risk-off after the US election results).

The lira reached another low yesterday in an especially vicious trading session which was fuelled, among other things, by the post-OPEC rise in the oil price. Even if the move was initiated by an exogenous factor, the market now undoubtedly looks for CBT's response -- the near-term outlook for the lira will heavily depend on whether the central bank is willing or unwilling to take action. Hence, what started as an externally-driven market move mutates into a test of resolve for the central bank

As a result, we recommend ATM vega call options to mitigate further upside risks of both the pairs, but why ATM contracts? Because the Vega is at its maximum when the option is ATM and declines exponentially as the option moves ITM or OTM. 

Alternatively, risk averse could also enter into diagonal call spreads for cost effectiveness; it is advisable to go long in 1M (1%) OTM 0.36 delta call, while writing 1W (1%) ITM call with positive theta and delta closer to zero (both sides use European style options), this credit call spread option trading strategy is recommended when the underlying spot FX price is anticipated to drop moderately in the near term and spikes up in long term.