Friday, September 9, 2011

Volatility Selling

The Swiss national Bank (SNB) recently announced it will seek defend the 1.20 level in the EURCHF to stem the strength of its currency by buying unlimited quantities. Upon further information, it seems has though they are selling options volatility as a means to defend that significant level. A central bank engaging in option vol selling sounds like a disaster to me. The question I have is what will happen when the plan backfires or they run out of bullets? Seems like to me that a BRIC country running surpluses and room for reserve growth will come to the rescue. The price; high. I bet it will be in the form of the SNB's 1,041 tons of gold as the continued wealth transfer to the eastern economies from the western accelerates.

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