EUR/CHF Option Trade - “Less returns but certain returns”

FX:EURCHF   Euro / Swiss Franc
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The sale of straddles is usually executed using at the money strikes. A trader can attain more probabilities of certain yields by selling a combination with different strike prices via something called shorting strangles.

The strategy implies selling out of the money calls and put strikes, as result of that position premium received from the sale of strangle strategy is less than that of premiums on straddle shorts. However, investor has more chances of retaining certain yields.

Let’s run you through with live instances how effectively the strategy fetched sure shot yields when we had advocated this strategy around a months ago.

Please follow below link for previous write up on strangle shorting strategy.


If you’ve gone through above link properly, then you must have been certainly convinced with the profits of 1623.48 Swiss Francs for the following reasons:

Tenor of strategy: 1 week ( Exp             .date – 25/03/2016)

Strikes chosen – 1.1039 & 1.1094

Credit received in the form of premiums on OTM shorts – 1623.48

The spot rate at the time of execution – 1.0925

The spot rate on expiry (i.e.25/03/2016) is 1.0899

Hence, premiums received initially can be pocket safely as the both options would not be exercised.

Like, straddle, strangle establishes lower and upper break even points, the trader is most likely to make profits if the underlying spot FX remains between two strike prices at expiration as the both options would expire worthless.

As shown in the diagram, strangle writing is more interesting strategy as it derives positive cash flows irrespective of the swings but should remain between two strikes.

For now, since it seems like there is no traces of volatilities ATM IVs have been lacklustre, declined to 4.23% for 1W expiries and just shy above 4.60% for 1M tenors, the least among G10 pairs, one could still make money with this strategy.

Please be noted that the above technical charts are for the reference to the historical spot rates to demonstrate the strategy and below diagram is to express the pay off structure during different exchange rate scenarios.
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