USD/CHF options burn banks amid illiquid markets
Options portfolios were impossible to delta hedge, traders say
Bank losses from January's shock Swiss franc move were probably the result of the companies being unable to delta hedge USD/CHF options books, according to traders and risk managers at four dealers.
In a matter of 20 minutes, the exchange rate of EUR/CHF dropped 30%, from 1.20 to 0.85, as liquidity evaporated and traders scrambled to get out of billions of dollars of long EUR/CHF bets.
The liquidiation of the one-way market made it impossible for USD/CHF options traders to delta hedge
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