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Derivatives

Traders Enter Feeding Frenzy For EUR/CHF Vol

Foreign exchange options traders were snapping up implied volatility on the Swiss franc last week, a move that caused one week implied volatility to rise by 1 vol in three days. Implied vol was trading at 6.2% as DW went to press on Thursday, said traders.

Implied volatility is being driven by the spot market, according to foreign exchange strategists. "The Swiss franc is caught in a tug-of-war," said one strategist, adding, "Bad fundamentals should be pushing it down, but the market's loss of risk appetite is supporting it."

Traders said the buying is largely investors and proprietary traders squaring their positions. They were predicting the Swissie would depreciate against the single currency and have been buying euros. The currency pair, however, has been going up and they are becoming nervous and getting out of the trade, according to one trader. The euro/Swissie was trading at CHF1.544 on Wednesday. Citigroup predicts the currency pair will hit CHF1.57 in three-months rising to CHF1.60 in a year, according to Anne Sanciaume, foreign exchange strategist in London.

Traders were expecting volatility to continue to rise and were buying short-dated trades. One trader, said some investors had been continuing to buy upside exposure to the currency pair because puts had become so expensive.

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