We suggest selling a 1Y EUR/USD 1.22-1.32 call spread for an indicative premium of USD 590 pips (spot ref. 1.2858) to position for medium-term downside.
The strategy has a breakeven spot rate of 1.2790 at maturity, which leaves a risk-reward ratio of 1:1.4. We prefer a sold call spread following the recent rise in implied volatility and widening of options skews.
Thursday's ECB meeting and the expected Fed tapering in September indicates that the historical gap in economic activity between the eurozone and the US is about to be reflected in relative monetary policy - for the first time since 2008. Hence, medium-term risks are to the downside in EUR/USD.
Timing is difficult, as EUR/USD has already moved lower, which is an argument for positioning via options and for scaling into a position. We will look to add more USD exposure on a potential correction (e.g. long USD vs short EUR, GBP, CHF).
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Sell 1Y EUR/USD 1.22-1.32 Call Spread
Published 07/08/2013, 07:18 AM
Updated 05/14/2017, 06:45 AM
Sell 1Y EUR/USD 1.22-1.32 Call Spread
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