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The Best Haven On Ukraine Isn’t The Same As The Most Effective

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The Best Haven On Ukraine Isn’t The Same As The Most Effective

By Ven Ram, Bloomberg Markets Live analyst and reporter,

The search for havens in the face of the invasion of Ukraine may lead to the usual suspects, but some assets and structures may be decidedly better than others.

The yen, for instance, hasn’t advanced since the attacks began and, if anything, is a touch weaker. Gold has been supported for sure. However, it’s now trading at a pretty rich premium (vs $1,745 on my model) — meaning those getting into it now are paying up a high entry hurdle. Those trades may be predicated on the conflict escalating materially, a topic not within the ambit of discussion of this piece.

The dollar has gone rip-roaringly higher, but at least it’s got fundamentals also working in its favor. The greenback has tailwinds from the outlook for the euro. The European Central Bank is likely to be more circumspect than the Fed when it comes to raising rates this year because of the conflict — especially if it proves to be protracted. Neither is the Bank of Japan in any hurry to tinker with its policy yet, putting the dollar on a good footing against two currencies that dominate the DXY Index weighting.

Still, the most effective haven may be options on EUR/CHF. While spot franc has advanced this week, its gains haven’t been exactly dramatic.

Against that backdrop, low-delta put options on EUR/CHF may deliver a greater bang for one’s buck should the conflict escalate, worsen or be protracted. Investors who see limited risk from the conflict may still hedge their positions using option structures like seagulls, which may offer a satisfactory risk-reward proposition.

Tyler Durden Sat, 02/26/2022 – 08:10

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