We still continue to hold onto our earlier call that was anticipated as to the trend for this pair is going to be in tight range between 124.467 - 122.158, look what's been happening on this pair which we've perceived this as non directional signals for short term basis are popping up.
Option trade recommendation: Naked Straddle Shorting
Why straddle shorting at this juncture: As we foresee non-directional trend along with lower volatility is being perceived of ATM contracts for next month or so at 7.6% and we like to get benefitted from low volatility pair as well, so here is the strategy suitable for such circumstance. We recommend shorting a straddle using At-The-Money options with positive theta, so thereby, as prices are unlikely to behave in any dramatic ways on either side, one can benefit from certain returns by shorting both calls and puts.
You prepare to square off both sides once time decay starts to hit. If intrinsic value moves too quickly, you plan to roll forward up in strike with the short call or roll down with the short put) and reproduce the strategy. The forward roll might turn out to be inevitable for one side depending on direction of price movement.
Short ATM put and ATM call (strikes at 124.050) simultaneously of the same expiry (preferably short term for maturity is desired).Maximum returns for the short straddle is achieved when the USD/JPY price on expiry is trading at around 123 levels only as both the instruments have to wipe off worthless. So that the options writer gets to keep the entire initial credit taken as profit.
