CSFB is pitching the strategy with a maturity of between six months and one year because it believes there is room for a short-term correction in the dollar's recent weakening against the euro. CSFB forecasts euro/dollar at above parity, dollar/Swiss franc at CHF1.56, cable at USD1.45, dollar/Aussie at USD0.60, dollar/Canada at CAD1.45 and dollar/New Zealand at USD0.48 in 12-months.
In the middle of December Chang recommended a similar trade in which customers would buy a three-month at-the-money dollar put against an equally weighted basket of euro, yen, Swiss franc and Canadian dollar, which cost 2.22% of the dollar notional value with implied volatility of 9.42%. Plain-vanilla options would have cost 40 basis points more than an option on a basket of currencies because imperfect correlation across exchange rates lowers implied volatility. This basket had appreciated by 3.22% on Friday. Chang has taken yen out of the basket it is recommending now because CSFB thinks that it has already appreciated as much as it will.