EUR/CAD ATM spot delta makes option strips more productive

As we foresee more bearish potential on this pair huge profits achievable with the strip strategy when EURCAD exchange rate makes a strong move either upwards or downwards at expiration, with greater gains to be made with a downward move.

Our last target at 1.4355 levels was decisively achieved, for now the pair is likely retest even below these levels, around 1.4150 levels back again. Even though some minor buying interest seen in this pair yesterday, the bulls could not break trend line resistance at 1.4387 levels to claims more dips further.

Hence, weights are to be more to cushion downside risks as a result, we recommend holding 15D at the money 0.50 delta call and simultaneously hold 2 lot of 1M at the money -0.50 delta put options.

The rationale: Any potential downswings should be optimally utilized, so as to participate in that downtrend, weights in the portfolio should be doubled with ATM puts in order to give the leveraging effects. The profitability can be maximized for every shift towards downside and this is not the same on upside.

What makes ATM instrument more productive in our strategy and delta effects: The delta of this instrument is here at its fastest rate and gets faster as your position come closer to the expiration date.

As a result, time decay may have a relevant impact on ATM options. A higher absolute delta value is desirable for an option buyer.

But please be noted that the absolute value of delta is a number between zero and a discount factor, therefore, 50% is not the centre value for the delta range.

Premium-Adjusted Spot Delta: The premium-adjusted spot delta takes care of the correction induced by payment of the premium in foreign currency, which is the amount by which the delta hedge in foreign currency has to be corrected.

ATM have the highest Gamma, Vega, and Theta which means their premium is the most sensitive to moves in either direction. The Delta of ATM options are 50%, which means there is an even likelihood of expiring ITM or OTM.