Confront NZD/USD’s steep declines with Calendar Spreads

Unexpected and inevitably imposed OCR rate cut by RBNZ are adding fuel to bearish momentum on NZD/USD fluctuation.

However, near term crucial support is seen at 0.6817 levels if further dips below 0.700 levels on closing basis. Keen observation on closing prices is eventually critical at this stage.

We believe any breach of the 0.7 levels may drag currency upto 0.6817 levels to bounce back.

Long term Hedging call:

When all eyes tend to drag this currency towards further slumps, on a long term perspective, contemplating the above critical support we build neutral calendar spread on this pair.

Here, idea is not to go against the trend but on hedging grounds, strategy goes this way-

Add 2M At-The-Money 0.5 delta Calls of NZD/USD (strike at 0.7018) with negative theta +

Add simultaneously shorts 15D At-The-Money -0.3 delta Calls of NZD/USD (strike at 0.7018) with positive theta.

On all almanac positions, it is highly essential to fix on on which summarize action to take when the near-term options expire.

This choice depends heavily on the revised outlook of the underlying exchange rate movements at expiry.