In FX Market Update: EM sell-off has eased - sell 3M the EUR/PLN straddle , 6 February 2014, we recommended selling a 3M straddle in EUR/PLN.
The main motivation for entering this position was to take advantage of seemingly overpriced implied volatilities in emerging market currencies. In particular, we saw value in the EUR/PLN on a three-month horizon and implied volatility in this cross has indeed fallen back since we took the trade on our books. Although implied volatility still looks expensive - when evaluated by Z-score differentials between implied and realised volatility (Z-score of 0.5) - we argue that the current market situation makes an early close more attractive.
EUR/PLN 3M Implied Volatility " title="EUR/PLN 3M Implied Volatility " width="474" height="242">
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