Swiss Franc: Seek Bearish Exposure

Since putting in a bottom on 5/22 at 1.0186, the Swiss franc has appreciated 6.5%...as of last week lifting futures to four-month highs. I am operating under the influence an interim high reached last week at 1.0962. Let the Fibonacci levels on the chart below guide you on this trade as I am targeting a move back to the 50-day MA (dark blue line) in the coming weeks.

On the docket this week domestically, the FOMC is meeting Tuesday and Wednesday and the SNB gets together on Thursday. While I see the US keeping rates at 0.25% and the SNB maintaining 0%, the FX markets could react on comments or any indication on the timing of IR changes in the future. The primary goal of the SNB is to ensure price stability, while taking due account of economic developments. In so doing, it creates an appropriate environment for economic growth. Translation a stronger franc is not conducive for growth moving forward. In a press release after a prior meeting, the SNB commented that “an appreciation in Swiss franc will threaten the price stability and may cause important damages to Swiss economy.” As the global economic situation is not very appetizing, the SNB said to be ready to proceed with an unlimited foreign exchange purchases to defend its currency, i.e. price manipulation as currency wars heat up.

To capitalize on potential depreciation in the Swissie, I am advising bearish exposure. My suggested play is short September futures while simultaneously selling out of the money puts 1:1. The idea is to make more money in the futures leg than you lose in your put option leg while cushioning the trade if prices trade north temporarily. Those more risk averse traders just looking to play the Central Bank meetings this week could buy July put options. With only 19 day until expiration if a move does not happen immediately this will be a loser. Be willing to risk the entire premium paid. At the money strikes cost $1400 and going out two cents the cost is $550…pick your poison.