FxWirePro: CAD/JPY weakness remains intact - execute iron butterfly on lower IV

Technical purview:

Considering the intermediate trend of this pair, lot of bearish candles have been piling up such as shooting stars and hanging man with gap down formation. Weekly RSI has still been converging with price slumps near oversold territories while slow stochastic is also reaching oversold zone but not trace of %K line crossover for price recoveries. The current prices remained well below moving average curve which signals long term bearish sentiments.

Currency Hedging Framework: (CAD/JPY)

As it is sensed that all chances of Yen may still look superior over Canadian dollar in short to medium term future though but no dramatic differences in prices, we advise to hedge this pair through below recommendations.

Currently the pair is trading at 90.555 with volatility of ATM contracts marginally inching higher (at 12.5%). We recommend buying OTM -0.49 delta put while simultaneously shorting ATM put with similar expiries and buy OTM 0.5 delta call while simultaneously shorting an ATM call with similar expiries. This strategy is structured for a larger probability of earning a smaller but certain profit as CADJPY is perceived to have a low volatility.

The highest return for this strategy is achievable when the pair at expiration is equal to the strike price at which the call and put options are sold. At this price, all the options expire worthless and the options trader gets to keep the entire net credit received when entering the trade as profit.