CHF is a good vol to own within G10 on gamma grounds alone (see above chart). Receptively, high-frequency realized vols have arrested their post-Brexit negative momentum and begun to turn mildly higher in August even in a broadly risk-friendly market lacking in macro catalysts.

USD/CHF is not the USD pair with the most shock value in the event of a risk market shock, as moves in the pair have increasingly become a derivative of those in EURUSD and EURCHF under the guidance of active SNB management of the Swiss Franc.

Despite this, we are comforted that CHF vs. EUR realized correlations have remained elevated at 80%, and their co-movement has been particularly strong during episodes of market stress, hence, USDCHF vol remains a credible proxy for EURUSD vol, the go-to risk hedge in FX options.

We particularly favor buying 6M USD calls/CHF puts as risk-reversals in USDCHF are priced at odds with the asymmetry of dollar risks.

USD/CHF skews trade bid for USD puts over USD calls, a concession to the traumatic franc de-peg of January 2015 and the fear of a relapse after the resumption of stealth SNB intervention. SNB's scheduled for monetary policy decision on Thursday that is likely to remain unchanged at -0.75%.

Long memory and tail risk fears are understandable aspects of option pricing, but they do mark out USDCHF as an unusual USD-pair that does not command a premium for USD calls, and where the discount for USD calls in comparison with USD puts runs counter to the valuation/positioning induced asymmetry of impulsive dollar strength but contained weakness.

Buying USD calls/CHF puts on the weak side of the risk-reversal is therefore a smile theta efficient way of gaining exposure to the market’s pain trade, and owning USD calls over USD puts has also proven to be well correlated to overall ATM levels including during episodes of vol spikes (see below chart).