Despite a continued increase in emerging market tensions and sell-off in RUB and TRY, overall risk sentiment has generally not been too badly affected. As shown in the charts above, implied EUR/RUB ad EUR/TRY volatility has surged again, while implied volatility in other EM currencies has remained fairly stable. In our view, the EUR/PLN implied volatility currently stands somewhat out and looks relatively cheap - especially considering the risk that the negative sentiment on RUB and TRY potentially could spread to the rest of the EMEA region leading to higher volatility on these markets as well. Hence, we recommend to position for a possible spill-over effect from the turmoil in Russia/Ukraine and Turkey to the rest of the EMEA-region by buying a 1M 4.20 EUR/PLN call option. The strategy costs an indicative up-front premium of 280 PLN pips, corresponding to 0.67% of EUR notional (spot ref.: 4.1790) and is profitable if the EUR/PLN trades above 4.2280 at maturity (01 April 2014).
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