巴黎银行-拉美地区-投资策略-墨西哥元：褪色还是新常态？-20181105-9页_1mb

Summary of Document: "MXN-A fade or a new normal? Inverted ATM vol and flat riskies term-structure"

Core Content

This document analyzes the recent behavior of USDMXN volatility and risk-reversal (RR) structures, comparing them to historical levels during key political events such as the 2016 US elections and the 2018 Mexican elections. It provides insights into potential trading strategies based on the observed volatility patterns and offers a risk-reward assessment for investors considering exposure to MXN.

Key Market Observations

• ATM Volatility and Risk-Reversals:

  • USDMXN ATM vols and risk-reversals have increased by 3.3 and 1 point, respectively, over the last few weeks.
  • These levels are comparable to those seen during the July 2018 Mexican elections but remain below the peak levels observed during the November 2016 US elections (ATM vols at 20.7 points, RR at 5.0 points).
  • The term structure of ATM vols is inverted, while the term structure of risk-reversals is flat, indicating a potential shift in market sentiment.

• Historical Behavior:

  • Following the 2016 US elections, USDMXN experienced a broad USD rally. During this period, ATM vols increased, but risk-reversals came under pressure.
  • This pattern of compression in risk-reversals despite a spot rally is now repeating, suggesting a possible normalization of volatility levels.

Trading Strategies

1. Calendar Spreads (Topside)

• Investors may consider 1x1 or light ratios of topside calendar spreads.
• These strategies are net long vol and benefit from the inverted ATM and flat risk-reversal term structures.
• Example trade: Buy 1y 25d Call (strike 24), sell 1.2x 3m 25d (strike 21.63) USDMXN calendar, offered at 1.11%.
• The trade has a delta profile that is initially flat but becomes long 12% delta as the short leg nears expiry.
• It captures positive carry+roll of 33, 58, and 76 bps over 30, 60, and 90-day horizons, respectively.

2. Selling Front-End Topside Strikes

• Alternatively, investors may consider selling front-end topside strikes against long cash positions, which appears to be an attractive strategy given the current volatility dynamics.

3. EURMXN Carry and 1Touch Calendars

• Fading MXN weakness can be done via EURMXN carry, which offers attractive risk-reward.
• Example trade: Buy 6m 21 EURMXN at-expiry-digital put, offered at 9.1%.
• The trade has a flat carry+roll profile of 0.5, 1.5, and 1.8 points over 30, 60, and 90-day horizons.
• Another strategy involves 1Touch calendars for EURMXN, offering a similar flat carry+roll profile.

Risk and Disclaimer

• The document is a marketing communication and not independent investment research.
• It may be subject to conflicts of interest due to the interaction with sales and trading teams.
• Performance data is based on back-testing and is illustrative only.
• No guarantee is made regarding the accuracy, completeness, or future performance of the strategies or instruments discussed.
• Risk warnings are provided for all strategies, including the potential for significant volatility, unlimited loss, and market or counterparty risk.
• The document is intended for Relevant Persons and not for general public distribution.
• The information is confidential and may not be copied or distributed without prior written consent.

Conclusion

The document suggests that the current volatility structure of USDMXN may be entering a new phase, potentially influenced by political developments. It highlights the use of calendar spreads, 1Touch options, and carry strategies against EUR as viable approaches for investors looking to monetize the inverted vol surface and flat risk-reversal term structure. The analysis is based on historical patterns and market behavior, with the caveat that past performance does not guarantee future results.