Technical Glimpse:
The downtrend that has been gradually prolonging and bearish candles are popping up every now and then with abundant volume confirmation. While %D crossover near 80 levels signifies the selling pressures and in order to boost this view RSI oscillator is converging with price slumps which suggests prevailing downtrend following right valuations.
Buy ATM -0.49 delta put (0.9470) + Sell (1%) OTM put option + Sell another deep (2%) OTM put option, all contracts with similar expiry.
So in an extension to the Bull Put Spread by buying another OTM put, the position assumes uncapped reward potential if the AUDCAD plummets below 0.9432. The problem is that now it is not totally clear if we have a bullish or bearish strategy as the pair's drastic unusual behavior from last one week, but because we are net long puts and we have uncapped profit potential if the AUDCAD falls, do we have to call this a bearish strategy? The answer lies in the reason for the trade and the position of the pair relative to the strikes. Because we are net long options (and particularly out-of-the-money options), we are better off trading this as a longer term strategy in order to counter the effects of time decay.
Delta of long put ladder spread is negative at the start. As such, its value will increase as the price of the AUDCAD decreases. So, in summary, if the pair falls below the lower (buy) strike, we make potentially uncapped profit until the pair reaches bottom; if it rises to anywhere between the middle and upper (short) strikes, we make our maximum loss. The extra leg also ensures that we may have two break even points.
