EURJPY tops the list of the liquid pairs that offer ex-ante risk/reward metrics in particular thanks to the sharp rebound in implied vols as spot remained in a tight 5% range over the past 10 months.
Also, while in general binary ranges are long smile convexity, the move in EURJPY and other JPY-crosses butterflies has been more contained than for instance USD pairs, offering an attractive entry point from this angle as well. A 20% TV binary range (i.e., a trade with a maximum leverage of 5:1 if barriers are not touched till expiry) looks attractive.
We choose the strikes slightly asymmetrically in order to grant some margin in case of extended EUR weakness (refer above chart). Hence, we recommend:
Buy 3M EURJPY binary range, barriers at 112/121.5 at EUR 17.9%/20.9% indic (spot reference: 117.30 levels). Courtesy: JPM


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