Execution: Short  1W (1%) OTM Put and Short 1W (1%) OTM Call

Market Outlook:  Less Volatile

Lower IVs of ATM contracts have been lacklustre, 4.8% for 1W expiry (the least among G20 currency space). and seems like huge disparity exists between option premiums and IVs as the 1W ATM puts have been priced 55% more than NPV which is absolutely absurd, this in turn is a cause of concern as to whether spot FX would move in sync with risk reversals or not.

Rationale: As we foresee narrow range trend is puzzling this pair on both daily and weekly charts.

At current spot at 1.0928, it has been oscillating between the range of 1.0319 on north and 0.9850 on south. So, with range bounded trend and lower IVs keeping in consideration we would like to remain in safe zone by achieving certain returns though shorting a strangle.

Margin: Yes, required.

Description: Trade the expectation of increased volatility without taking a view on direction. A strategy commonly used over major economic announcements and events.

Similar to the Long Straddle, but the break-even points are further apart due to the different strike prices. A Long Strangle is also cheaper.

The OTC options market appeared to be more balanced on the direction for the pair over the 1m to 1y time horizon as hedgers have been cautious on long term downtrend that has lasted since mid April 2013 and as a result delta risk reversal for EURCHF was turning into negative.

Return: The return are certain as long as the underlying spot FX remains between two strikes.

Loss:  More losses for the strategy can be experienced if the underlying spot price makes a strong move either upwards or downwards at expiration.

Effect of Volatility: Cash inflow would be certain as volatility decreases and the value of both options will decrease as the volatility rises.

Effect of Time decay: Shorter tenors desirable as the value of both options decay each day that passes.