Currency option traders with bullish U.S. dollar views piled into dollar/Swiss franc last week to capture dollar upside. One-month implied volatility was at 9.87% on Wednesday, which was attractive to speculative players when compared to implied volatility on euro/dollar, which was at 8.77%. In spite of its start-of-the-week rally against the Swiss franc, however, the dollar eventually fell to USD1.2177 on Wednesday, down from Tuesday's high of USD1.2214.
"Dollar/Swiss options have certainly been more valuable to own than euro/dollar," noted one trader. "If you have a dollar view, dollar/Swiss is the pair to trade," he added. The currency pair often leads market moves because it is less liquid and less frequently traded than cable, dollar/yen and euro/dollar and attracts speculative players.
Popular trades involved buying at-the-money dollar call spreads to play on a possible dollar rise, according to traders. There was also some positioning in the run up to last Thursday's U.S. trade deficit figures and traders reported demand for at-the-money options with overnight strikes on dollar/Swiss.
Paul Mackel, currency analyst at ABN AMRO in London, noted the move higher by the dollar against the Swiss franc also makes it cheaper to buy dollar puts. "My bias would be to buy downside dollar/Swiss," he said. Frida Gjorstrup, analyst at JPMorgan, added the U.S. house expects the dollar's strengthening against the Swiss franc to be short-lived, with the dollar declining again by the end of the quarter.
