FxWirePro: AUD/NZD Vega longs capitalizing on buzzing vols to favor in options straps on both hedging and speculative grounds

AUDNZD is heading towards 1.1200 during the days ahead, as long as Australian and Chinese data doesn’t disappoint.

In medium term perspective, a retest of the 1.1200 area seen in April is possible if iron ore’s rally since mid-June continues and global risk sentiment remains elevated.

OTC outlook and options strategy:

Please be noted that AUDNZD call options of 1m tenors are trending higher above 8.9% (shy below 9%).

Please also be noted that the options with a higher IV cost more which is why in this case OTM puts have been preferred over ATM instruments. This is intuitive due to the higher likelihood of the market ‘swinging’ in your favor. If IV increases and you are holding an option, this is good. When you write an option, the seller wants IV to remain lower level or to shrink so the premium also fades away.

Well, in order to arrest this upside risk that is lingering in intermediate trend and prevailing declining trend, we recommend diagonal option strap versus OTM put strategy that favors underlying spot’s upside bias in long run and mitigates bearish risks in short term.

So, we recommend building the FX portfolio exposed to this pair with longs positions in 2 lots of 1M ATM 0.51 delta calls and 1 lot of ATM -0.49 delta puts of similar expiries or one can even use narrowed tenors with a view to taking time decay advantage.  The strategy is executed at net debit.

Since, near term trend seems little edgy and upswings in near term seem to be dubious as per the signals generated by technicals, for more reading, go through below weblink for our detailed analysis:

http://www.netdania.com/Products/News/NewsStory.aspx?id=970574%40fxWire%40NC-TC%7B%22Syms%22%3A%5B%7B%22sym%22%3A%22AUDNZD%22%2C%22isin%22%3A%22FXAUDNZD%22%7D%5D%2C%22Inf%22%3A%7B%22CTR%22%3A%22au%22%7D%7D&p=fxwire_dl&s=fxWire@NC-TC&t=1505108910&h=FxWirePro%3A+antipodeans+break+channel+resistance%2C+major+consolidation+phase+remains+robust%2C+shooting+star+signals+weakness+in+minor+trend+&follow=False

AUDNZD option straps strategy should take care of both upswings and downswings by giving the option holder a right to buy at predetermined strike price regardless of forward price, and on speculative grounds the strategy is likely to derive handsome payoff structure as shown in the diagram with more potential on upside and certain yields regardless of swings on either side.