FxWirePro: Avoid fresh longs on EUR/AUD as it breaches channel line support - vega spreads to speculate on HY vols

EURAUD breaks channel line support back again at around 1.5695 levels to move towards southwards, while leading oscillators also signal bearish calls as they are converging downwards to the dropping prices. RSI curve is currently trending at 51.7382 and %D line crossover at 35 level (%D is around 26.4811and %K is at 16.6051). Prices are falling well below moving average curve as well, so we believe with all these bearish indications, the pair to drag towards 1.5315 levels to make next channel distance approximately.

Ratio spread explained in brief: Well, it is good news for options traders who are keen on shorting as the implied volatility of ATM contracts of this pair is flashing close to 15%.

Execution: EURAUD is currently trading at 1.5739. Add 2 lots of longs on 15D deep ITM strike vega puts, while shorting one 4D OTM strike put. Vega in a back spread is generally dominated by the long options the more time there is to expiration and the closer EURAUD is to the strike price of the long options. The more time there is to expiration on longs set ups, generally the more positive vega the back spread. The reason for this is that far from expiration, the difference between the vega of one strike and the next is relatively small. This is an income strategy. You are looking for a net credit if the pair stays within a range or rises.