18 Feb 2015
EUR/CHF and USD/CHF trade setup using options - ORE
FXStreet (Barcelona) - Merav Brenner of ORE, suggests an options strategy for trading EUR/CHF and USD/CHF, with the correlation between the pair shifting to a highly positive number from previous negative.
Key Quotes
“Since the SNB event, correlation between EUR/CHF and USD/CHF has shifted from a negative 40% to a highly positive 93%. The correlation […] shows this transition from -40% to +93%.”
“Later this week, we have the Greek situation which will shed some light on the future of the EU. This creates uncertainly and may increase volatility. There is a high chance EUR will decline faster than USD.”
“Given the positive correlation between EUR/CHF and USD/CHF, an interesting position to take is a long EUR/CHF Put and a long USD/CHF Call.”
“If the EUR falls, the Put option will pay-out more than the loss from the Call.”
“On the other hand, if we are wrong and EUR rises the loss from the Put option will be covered by the payout from the Call i.e. we have hedged our losses.
“The position:
Long EUR/CHF Put, expiry on Feb 20th, strike at-the-money (strike rate = current spot rate)
Long USD/CHF Call, expiry on Feb 20th, strike at-the-money”
“Scenarios:
If EUR/CHF reaches 1.0500, payout at expiry would be 763 CHF and your maximum loss from the USD/CHF Call is 401 CHF - you make a net profit of 362 CHF
If USD/CHF reaches its resistance level of 0.9400, payout at expiry would be 625 CHF and your maximum loss from the EUR/CHF Put is 478 CHF - you make a net profit of 147 CHF”
“Any move beyond the mentioned levels will result in a greater profit; if the spot price, of either pair, moves 0.5% past the level then profit will be 100%.”
Key Quotes
“Since the SNB event, correlation between EUR/CHF and USD/CHF has shifted from a negative 40% to a highly positive 93%. The correlation […] shows this transition from -40% to +93%.”
“Later this week, we have the Greek situation which will shed some light on the future of the EU. This creates uncertainly and may increase volatility. There is a high chance EUR will decline faster than USD.”
“Given the positive correlation between EUR/CHF and USD/CHF, an interesting position to take is a long EUR/CHF Put and a long USD/CHF Call.”
“If the EUR falls, the Put option will pay-out more than the loss from the Call.”
“On the other hand, if we are wrong and EUR rises the loss from the Put option will be covered by the payout from the Call i.e. we have hedged our losses.
“The position:
Long EUR/CHF Put, expiry on Feb 20th, strike at-the-money (strike rate = current spot rate)
Long USD/CHF Call, expiry on Feb 20th, strike at-the-money”
“Scenarios:
If EUR/CHF reaches 1.0500, payout at expiry would be 763 CHF and your maximum loss from the USD/CHF Call is 401 CHF - you make a net profit of 362 CHF
If USD/CHF reaches its resistance level of 0.9400, payout at expiry would be 625 CHF and your maximum loss from the EUR/CHF Put is 478 CHF - you make a net profit of 147 CHF”
“Any move beyond the mentioned levels will result in a greater profit; if the spot price, of either pair, moves 0.5% past the level then profit will be 100%.”