Menu

Search

  |   Technicals

Menu

  |   Technicals

Search

FxWirePro: Capitalize on AUD/NZD rallies to deploy shorts in put ladder for hedging

Although we've been observing some bounces we could foresee AUD's weakness in coming weeks.

But on the contrary, it's been a puzzling trend as we also carry dubious eyes on Kiwi fundamentals which are not that conducive on NZD front and hence, we maintain long term bearish trend in our opinion, while short term upswings could also to be utilized by below strategy.

Some price recoveries from last couple of days could be utilized by employing short term put writings and derives certain returns.

With current spot FX at 1.0674 levels, the strategy takes care of long term basis hedging motives and so far trend likely to favour our short side of 1.5% ITM put option with shorter expiry which is functioning as per our earlier predictions of upswings in near term and it may either hold this level or drag slightly further above would benefit shorts.

Thereafter the functionality of active longs on 15D ATM -0.50 delta put option and one more long position on 1M (-1.5%) OTM -0.39 delta put option would prove to be hedging materials.

Short Put Ladder Spread profits in all 3 directions; When the pair goes upwards (strongly or moderately), remains stagnant or goes downwards strongly. Indeed, the Short Put Ladder Spread has made profitable 4 out of 5 possible outcomes which make its probability of profit extremely high.

What does it do with current trend: Since the short put ladder is an unrestricted return with partial risk bearing strategy that is deployed because in addition to the puzzling uptrend in short term and downtrend in long-term, we think that the AUDNZD would also perceive significant volatility in the near term.

Maximum returns are limited to the extent of initial credit received if the AUDNZD rallies above the upper breakeven point (BEP) but large unlimited profit can be achieved should the underlying exchange rate of AUDNZD makes a vivid downswings below the lower BEP.

  • Market Data
Close

Welcome to EconoTimes

Sign up for daily updates for the most important
stories unfolding in the global economy.