Yesterday afternoon the stop in our long EUR/CHF recommendation was triggered. The position was entered at 1.2325 in FX Top Trades 2012 from 14 December 2011 and we have incurred a loss of 2.2% on the position.
EUR/CHF has moved lower over the past couple of weeks after Hildebrand resigned from the SNB on 9 January. The market apparently fears that Thomas Jordan, the most likely successor to Hildebrand, will be less in favour of the 1.20 minimum target. Hence, the risk of a sudden lift of the floor has fallen, making it less risky to be long CHF as a hedge against the euro debt crisis.
The stop in EUR/CHF was deliberately placed safely above the 120 SNB minimum target as we in December feared that we would not be able to “get out” of our position if the 1.20 target was broken, e.g. in a situation with a significant escalation of the European debt crisis.
We still believe that the SNB eventually will lift the minimum target and continue to see EUR/CHF at 1.26 on a 6-month horizon. Considering the latest drop in volatility we favour option strategies in EUR/CHF that will benefit from a large move in the cross that could come from either a hike or a break of the 1.20 minimum target.
One way to position for this would be combining a long spot position with a zero-cost leveraged put spread. For example, a sold 3M 1.20 EUR/CHF put option could be used to finance a 1.1680 put with double notional (indicative prices, spot reference 1.2048). This structure would allow its holder to benefit from a gradual rise in EUR/CHF through the spot position. If EUR/CHF falls below the floor, implied volatilities would likely soar, and in this case the holder would also benefit. The worst-case scenario would be a fall in EUR/CHF towards 1.1680 shortly before maturity.
The 10 FX Top Trades for 2012 have on average yielded a return of 2.0%
The other trades recommended in FX Top Trades 2012 have benefitted from the strong rally in risky assets seen lately. We are considering locking in the profit in the short GBP/PLN and the cherry-picked basket that until now have yielded a return of 7.6% and 6.4%, respectively. On average the 10 trades have returned 2.0% since they were opened on 14 December 2011. See next page for trade overview.
EUR/CHF has moved lower over the past couple of weeks after Hildebrand resigned from the SNB on 9 January. The market apparently fears that Thomas Jordan, the most likely successor to Hildebrand, will be less in favour of the 1.20 minimum target. Hence, the risk of a sudden lift of the floor has fallen, making it less risky to be long CHF as a hedge against the euro debt crisis.
The stop in EUR/CHF was deliberately placed safely above the 120 SNB minimum target as we in December feared that we would not be able to “get out” of our position if the 1.20 target was broken, e.g. in a situation with a significant escalation of the European debt crisis.
We still believe that the SNB eventually will lift the minimum target and continue to see EUR/CHF at 1.26 on a 6-month horizon. Considering the latest drop in volatility we favour option strategies in EUR/CHF that will benefit from a large move in the cross that could come from either a hike or a break of the 1.20 minimum target.
One way to position for this would be combining a long spot position with a zero-cost leveraged put spread. For example, a sold 3M 1.20 EUR/CHF put option could be used to finance a 1.1680 put with double notional (indicative prices, spot reference 1.2048). This structure would allow its holder to benefit from a gradual rise in EUR/CHF through the spot position. If EUR/CHF falls below the floor, implied volatilities would likely soar, and in this case the holder would also benefit. The worst-case scenario would be a fall in EUR/CHF towards 1.1680 shortly before maturity.
The 10 FX Top Trades for 2012 have on average yielded a return of 2.0%
The other trades recommended in FX Top Trades 2012 have benefitted from the strong rally in risky assets seen lately. We are considering locking in the profit in the short GBP/PLN and the cherry-picked basket that until now have yielded a return of 7.6% and 6.4%, respectively. On average the 10 trades have returned 2.0% since they were opened on 14 December 2011. See next page for trade overview.