The euro/Swiss franc 25-delta risk reversal is switching back toward favoring euro puts/Swissie calls. This comes after several months of favoring euro calls/Swissie puts, which is exception in this cross. Many hedge funds, which had been long euros against the Swiss franc, dumped their positions as bond prices weakened over the last month, said a trader, noting that this was largely responsible for the move in risk reversals.
Risk reversals have been in favor of euro puts for the last five years, with a brief exception at the start of 2001, according to JPMorgan data. Over the last couple of months, however, one-month 25 delta risk reversals have leaped as high as one vol on the upside and one-year risk reversals have climbed to 0.4 vol, noted a trader. This trend now seems to be on its last legs, with volatility having come off to 0.05 and 0.1 vol on the one-month and one-year respectively, in the last few days.
