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Please be noted that the IVs of ATM contracts of 1m and 2w tenors are spiking shy above 11.7% and 12.75% respectively, this has been justified by historical volatilities in spot FX fluctuations (see big real body candles on monthly technical charts). If the IV during longer tenors keep increasing and you are holding an option, this is good for holders.
Although this APAC pair has been spiking from the lows of 75.966 to the recent highs of 87.533 levels (i.e. almost 15.22% in just 3-4 months), the bears have resumed at that high and evidenced price drops again to the current 84 levels in just 1 month, that is where even a stiff resistance is observed on technical grounds, (i.e. again 4%).
We are calling it for despite a mild upswing, the long-term declining trend still seems to be intact as you could recently see in our technical write up that the convincing volumes on declining rallies and technical indicators favoring bears on the monthly charts.
Please refer below weblink for more reading on our technical post:
Traders tend to view the put ratio back spread as a bear strategy because it employs puts. However, it is actually a volatility strategy.
Most notably, you see the disparity between the premiums and the implied volatility of 1M ATM put contracts.
ATM premiums are priced at just shy above 6.5% whereas the IVs are trending above 11.7% which is quite on the higher side when long-term trend is bearish which is a good sign for option holders.
Because the spot Fx of the underlying pair is dipping along with rising IVs, this is good news for option holders as such options with a higher IV costs more. Thereby, on expiration, their contracts would have higher values than they bought.
You should also note short-dated options are less sensitive to IV, while long-dated are more sensitive.
As we expect the underlying currency exchange rate of AUDJPY to make a larger move on the downside. It is advisable to purchase 1M 1 lot of at the money -0.51 delta put, 2M 1 lot of (1%) out of the money -0.35 delta put and sell 2W one lot of (1%) In-The-Money put option.
So far we all know that the position uses long and short puts in the ratio, such as 2:1 or 3:2 and so on to maximize returns depending upon risk appetite and returns expectations.
