FxWirePro: CAD/JPY “Diagonal Options Straps” to Mitigate Risks of Both Minor and Major Trend

CAD quietly consolidating at the midpoint of recent range; remain mid-term bullish. Crude oil has responded positively to developments, with WTI trading near $54.90, leaving the CAD’s broader under-performance on the day looking a little questionable. 

The unemployment rate in Canada rose to 5.8% in January of 2019 from 5.6% in the previous month and above market expectations of 5.7%. The economy added 66.8 thousand jobs in January, after creating 9.3 thousand in December and compared with the market consensus of 8 thousand.

Contemplating all above factors, although it is sensed that all chances of CAD may look superior over Japanese Yen in the near-term future; we advise balanced-hedging perspective but to favor slightly CAD’s appreciation in near-terms through below recommendations.

OTC Updates and Options Trading Strategy (CADJPY): 

Positively skewed CADJPY IVs of 3m tenors have still been signaling bearish risks, the hedgers’ interests to bids for OTM put strikes up to 80.500 levels indicating downside risks in the medium terms. Please observe above technical chart for minor upswings in the short run that are to be capitalized for interim longs, while uphold short hedge as the major downtrend remains intact. Accordingly, we advocated options straps strategy to address both short-term upswings and major downtrend.

We’ve been firm to hold on to this strategy on both trading as well as hedging grounds, unlike spreads, combinations allow adding both calls and puts at a time in our strategy.

Buy 2 lots of 1m at the money delta call option and simultaneously, buy at the money put options of 3m tenors. It involves buying a number of ATM puts and double the number of calls. Please be noted that the option strap is more of the customized version of options combination and more bullish version of the common straddle. 

Huge profits achievable with this strategy when the underlying currency exchange rate makes a strong move on either downwards or upwards at expiration, but greater gains to be made with an upward move. Hence, any hedger or trader who believes the underlying currency is more likely to spike upwards can go for this strategy. Cost of hedging would be Net Premium Paid + brokerage/commission paid. Courtesy: Sentrix

Currency Strength Index: FxWirePro's hourly CAD spot index is flashing at -81 levels (which is bearish), hourly JPY spot index was at -1 (neutral) while articulating at (07:15 GMT). 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex