(Bloomberg) -- Euro traders risk getting too comfortable as the clock ticks down to German elections this weekend.

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There's an unusual calm in the derivatives markets: the majority of euro options expiring the day after Sunday's vote tilt in favor of more gains and bearish sentiment on the common currency has faded. Stock markets are also pricing a benign outcome, with Germany's benchmark DAX gauge at a record high.

That positioning threatens to flip painfully if the center-right CDU/CSU alliance, which has been leading polls, struggles to form a coalition. Such an outcome would likely drive the euro toward parity with the dollar as uncertainty and political horse trading with smaller parties ensues.

Societe Generale SA is recommending investors buy protection against a drop in the euro as a result, while Commerzbank AG is warning its clients of the risk.

"Everyone seems to be assuming that it'll be a non-event," said Michael Brown, senior research strategist at Pepperstone Ltd. "That sort of complacency could lead to even more of a market jolt."

Protracted coalition negotiations -- particularly if they're held after a big surge in support for the far-right AfD party -- would leave Europe in a "worst-of-all-worlds scenario," Brown said. The knee-jerk market reaction could drive the euro below $1.03, he predicted.

The common currency was trading 0.1% weaker at 1.0486 as of 8:41 a.m. in London, leaving it flat on the week.

Michael Pfister, a currency strategist at Commerzbank, says that his base case is for a center-right alliance led by Friedrich Merz to form a government, but "an unclear majority is clearly a risk for the euro."

Merz's alliance has hovered at around 30% for months, with the AfD in second place at about 20%, according to the Bloomberg polling average. Chancellor Olaf Scholz's Social Democrats trail in third at around 15% and the Greens fourth at 13%. Depending on how many smaller parities secure seats in Bundestag, a three-way coalition may be needed to form a government.

Confronted with those risks, options traders seem remarkably sanguine. Data from the Depository Trust & Clearing Corporation show that 60% of options that went through this year and that expire Monday are targeting a stronger euro.