25Delta FX Dynamic Virtual Program for MV Credit • Strategy #6
Portfolio Details:Notional Exposed: Usd 150MM
Benchmark: 100% hedged
Spot at inception: 1.1000
Expiry: March 10th 2020
Forward rate at inception: 1.10193
Cost of forward: 0.17% monthly
Sell EUR Call USD 150MM at K=1.1200, Vol 4.3%, Premium: Eur 70k
Sell EUR Put USD 150MM at K= 1.0850, Vol 3.8%, Premium: Eur 50k
Sell Usd 150MM at Fwd rate 1.10193
Premium from options: 0.09% or Eur 120k
The strategy will deliver positive return against the benchmark (better settlement results) at maturity, if Spot rate terminates between 1.1210 & 1.0840.
A new macro driver has come into scene (Coronavirus) with most impact on AUD and other China periheral currencies rather than EURUSD.
Market Situation and events ahead:
We establish this strategy with the aim of cutting in halve the cost of a forward for this month in a conservative exercise, as we still do not know if thhe current environment may go beyond contained expectations and split over into currenciy markets, thus raising volatility.
We will folloow markets closely to see potential evolution of the main dirver of markets, to make a posiiton if needed to increase the alpah, and in absence of monetary meetings, and with macro data in both sides of the pound without major disruptions.