The forecast shows continued tight range-trading in EURCHF over the 1Y horizon. This stability masks a still unstable underlying flow position in which the SNB is recycling all of Switzerland’s current account surplus though persistent FX intervention (the SNB needs to intervene because net private capital outflows are essentially zero).

At current spot at 1.0895, the pair has been oscillating between the range of 1.1199 on north and 1.0732 on the south.

Option-trade recommendation: Strangle Shorting

Considering above OTC market and technical signals we could now foresee the slight price drops that could bring back trend in the narrow range that lasted from 9 months or so.

While OTC markets also predict the choppy range to prolong further as you can probably make out from the lower IVs of ATM contracts over various tenors, 3.5% and 3.9% for 1W and 1m expiries respectively (the least among G20 currency space). While 25-delta risk of reversals of EURCHF have been neutral with the no significant hedging sentiments.

At spot ref: 1.0928 with range bounded trend keeping in consideration we would like to remain in a safe zone by achieving certain returns though shorting a strangle.

Naked Strangle Shorting

Overview: Slightly bearish in short term but sideways in the medium term.

Time frame:  7 to 10 days

The execution: Short 1W OTM put (1.5% strike difference referring lower cap) and short OTM call simultaneously of the same expiry (1% strike referring upper cap) (we reiterate, preferably short term for maturity is desired).

Rationale: As per the 2w IV skews do not signify any dramatic change on either direction that would mean that the lacklustre sideway trend to prevail further in near terms. You can be rest assured with the initial premiums that are certain yields as long as the underlying spot fx continue to remain the same range bounded trend.

Risk: Huge losses for this strategy can be experienced when the EURCHF spot price makes a strong move either upwards or downwards at expiration.