Frame CRS of USD/CAD in 2:3 or 3:5

Since this currency cross is set to move either in sideways or slightly bullish we frame the below strategy for both trading as well as hedging purpose.

As we are looking ahead for either a sharp move higher in the underlying currency or a sharp move in implied volatility during the span of the options.

Currency Options Insights: Long Call Ratio Spread

Buy a near month Call and sell more Calls at a higher strike price in ratio of 2:3 or 3:5.

As it is a combination of Bull Call Spread and Naked Calls, one simple variation of this strategy is to use a different ratio such as 2:3 or 3:5.

Why proportion in 2:3 or 3:5 ratio: The general rule to these variations is that the combined Delta of one side of the spread roughly equals the combined Delta of the other side when the position is initiated, so that the strategy starts off being Delta-neutral.

Delta favours: If the underlying stock moves sharply higher, the combined Delta of the long calls increases more quickly than that of the short call, thereby creating a positive relationship to the underlying.

Remember to keep a short time to expiration to take advantage of time decay in short positions and not to give stock time to move higher.

Margin is required to take short call positions.

Maximum returns would be short call strike - long call strike + credit received or - Debit paid.