Let's begin with the review of strategy performance that we've advocated on 1st of April, we came up with credit call spreads (1% ITM call shorts and long on 1% OTM call). Those who executed this at that juncture would have made huge money by now with shorts expiring worthless.

Please go through below link for more reading on our earlier post:

http://www.econotimes.com/FxWirePro-AUD-JPY-premiums-priced-in-sync-with-1M-ATM-IVs-credit-spreads-for-speculation-and-PRBS-for-hedging-187861

Well, as per our anticipation the pair has shown considerable dips so that the initial premiums received on short call of 1w expiries could certainly be pocketed.

For now, ATM IVs of AUDJPY is spiking crazily at 22.66% for 1W expiries and 15.62%b for 1M expiries, that is substantially growing to gain in option premiums as the spot FX drifts toward 80 levels in the days to come.

Options with a higher IV cost more. This is intuitive due to the higher likelihood of the market 'swinging' in your favour. If IV increases and you are holding an option, this is good. You should also note short-dated options are less sensitive to IV, while long-dated are more sensitive.  

The sensitivity tool signals more positive change in premiums in OTM strikes scenarios.

The higher probability numbers for OTM strikes when compared to the ITM strikes, that means these the ATM puts will have higher likelihood of expiring in the money in our Put Ratio Back Spread strategy.

Whereas, on hedging grounds, Put ratio Back Spreads are advocated.

Because, the trend signalling bearish risks after breaking major support levels with favourable bearish signals by technical indicators, and secondly, the traders tend to view the put ratio back spread as a bear strategy, because it employs puts. However, it is actually a volatility strategy.

Hence, the 2 lots of 1M At-The-Money -0.52 delta puts would likely perform positively on hedging downside risks as spot FX curve keeps dipping. Because delta of these instruments have grown more than 52% and are likely to grow even bigger as these instruments still have 15 more days to expire.