FxWirePro: Capitalize on prevailing AUD/USD rallies to bid on bearish neutral RR to deploy 2:1 diagonal PRBS

AUDUSD's higher IV with negative delta risk reversal can be interpreted as an opportunity for put longs as the market reckons the price has downside potential for large movement in the days to come which is resulting option holders’ on competitive advantage.

Accordingly, we had advocated put ratio back spreads a couple of days ago, wherein short leg is functioning as the underlying spot FX keeps spiking.

Please be noted that the positively skewed IVs of 6m tenors signify the hedgers’ interests to bid OTM put strikes upto 0.73 levels (refer above diagram).

While delta risk reversal reveals divulge more interests in hedging activities for downside risks even though we see the neutral shift in this bearish hedging arrangements.

So, the speculators and hedgers for bearish risks are advised to capitalize on the prevailing rallies and bid on 1-6m risks reversals to optimally utilize vega longs.

We advocate weighing up above aspects and uphold the same option strategy on hedging grounds, we eye on loading up with fresh vega longs for long-term hedging, more number of longs comprising of ATM instruments and ITM shorts in short term would optimize the strategy.

So, the execution of hedging positions goes this way:

Short 1m (1%) OTM put option as the underlying spot likely to spike mildly, simultaneously, go long in 1 lot of vega long in 6m ATM -0.49 delta put options and 1 more lot of (1%) ITM -0.55 delta put of the same expiry.

Currency Strength Index: FxWirePro's hourly AUD spot index is popping up at 128 levels (which is highly bullish), while hourly USD spot index was at shy above -133 (which is extremely bearish) at 06:15 GMT. For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex.

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