Commerzbank Sees Calm Summer In Euro/Dollar

  • 15 Jul 2002
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Commerzbank is pitching foreign exchange options trades that anticipate a calm summer market, predicting euro/dollar will not climb as dramatically as other banks are forecasting. Nick Parsons, chief currency strategist in London, was recommending two trades last week with the expectation that the euro will reach parity, but not extend more than three cents above its recent high of USD0.9985. One trading idea is buying a two-month euro/dollar double no touch option with barriers at USD0.95 and USD1.03 for 21.75% of the total payout, and sell a three-month double no touch with the same barriers for 11.25%, for a total cost of 10.5%.

For institutional investors that are limited in terms of using double no touches, Commerzbank is also recommending selling a one-month strangle--selling a USD0.9625 euro put and a USD1.01 euro call--at a reference spot rate of USD0.9865. Simultaneously, the investor would buy a three-month euro call struck at USD1.01. "This trade is a low-cost way of playing a calm summer market with a breakout to the topside at the end of the third quarter," Parsons said. The strategy profits above USD1.01235 after the first month.

However, Bear Stearns and UBS Warburg are anticipating that a bullish move in euros could come sooner. James Fauset, v.p. in foreign exchange at Bear Stearns in London, last week was recommending a trade where clients sell a one-month euro put struck at USD0.9840 with a knockout at USD1.0045 and buy a one-month euro call struck at USD1.01. Spot was trading at USD0.9910 at the time of the recommendation on Tuesday. Fauset said Bear Stearns was pitching a similar trade a week earlier, but with a knockout at the same level as the strike.

  • 15 Jul 2002

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5 HSBC 224,273.23 905 6.15%

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5 UBS 8,763.73 42 6.23%