Euro/dollar and dollar/Swiss implied volatility fell last week after Credit Suisse First Boston reportedly sold USD1.5 billion of one-month dollar puts/Swiss calls struck at CHF1.6875 Tuesday and UBS Warburg jumped into the market to sell over a yard of euro calls/dollar puts, according to traders. The euro calls/dollar puts mature Feb. 26 and were struck at USD0.8725. Traders at CSFB and UBS declined comment.
The option selling caused dollar/Swiss one-month implied volatility to drop to 9.35% Thursday from 10.25% Monday and euro/dollar vol fell to 9.2% from 10.1%.
Foreign exchange options traders believe CSFB executed the options on behalf of a client after it was exercised on a two-yard short dollar call/Swiss put position, which expired in the money on Wednesday. The first options were struck at CHF1.6650 and expired when spot was trading at CHF1.6975.
Traders believe CSFB's client is long Swiss francs because the first option position expired in the money, so by selling the dollar puts/Swiss franc calls it is covered against further depreciation of the Swiss franc against the dollar and earns premium if the Swissie appreciates.
UBS opted to sell euro/dollar options rather than selling dollar/Swiss options because it generated more premium, as the market is long dollar/Swiss from the CSFB trades, according to traders.
