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SocGen Issue New Trade Idea: Short EUR Via Options

EUR
  • SocGen add their name to the list of those looking for further EUR weakness in the coming months. They write that there’s lots of room for more EUR shorts with recession fears and the prospect of ECB paralysis both key drivers.
  • As such, they recommend expressing a EUR short via the purchase of EUR/USD 0.98 2 month puts, while selling 0.96 2m puts with a 0.94 knock-in. They note that this structure is an ‘appearing' put spread and costs only 0.07% more than a vanilla 0.98/0.96 put spread, but with a more attractive pay-off profile.
  • The structure benefits the most from spot trading between 0.94 and 0.96 in two months and if the barrier is hit, the pay-off becomes a standard put spread 0.98/0.96, which still delivers 4.4 times the premium paid if the spot is below 0.96 at expiry.
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