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Volatility In Swiss Franc Causes Short-Dated Activity

Traders were snapping up Swiss franc options against most of the major currencies last week in the short-end of the curve. "Clients were gagging to get into the gamma," said Lars Ahlgreen, senior foreign exchange trader at Credit Agricole Indosuez. This caused euro/Swissie one-month implied volatility to jump to 5.41% Wednesday from 5.1% the previous Friday.

Fluctuations in the euro/Swiss franc spot rate between CHF1.5370-1.5560 last week caused clients to purchase short-dated options, with maturities up to 45 days. Traders said the short-dated Swissie calls/euro puts had strikes at CHF1.56-1.58 and the Swissie puts/euro calls were struck at CHF1.52-1.53.

A total of around EUR500 million (USD567 million) was executed in plain-vanilla options with another EUR500 million-EUR1 billion in exotics, according to a trader.

"We have seen carry trades being unwound over this week," said Ian Stannard, foreign exchange strategist at BNP Paribas in London. He added: "These positions were unwound as a result of a recovery in the dollar, rising risk appetite and a switch out of bonds into equity." BNP Paribas predicts the euro/Swissie will hit CHF1.54 by Q3 and CHF1.53 by year end.

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