FxWirePro: Construct Bull Calendar Spread to hedge EURCAD upside risks

Industrial Production in Germany decreased 0% in May of 2015 over the previous month. Output rose by 0.9% MoM in April, which was the strongest print since December last year. However, amidst signs that the Greek negotiations have served as a headwind to broader euro area sentiment and activity. Germany has been the major contributor for Greece debt.

Deploying call options at current juncture, the bull calendar spread strategy can be setup by buying long term slightly Out-Of-The-Money and simultaneously writing an equal number of near month OTM calls of EURCAD.

The options trader constructs this strategy being bullish in the long term and is shorting the near month contracts with the intention to ride the long term calls for free. So buying 3M (1.5%) OTM delta call would be reduced its cost while shorting 15D (1%) OTM calls.

Once the near month options expire worthless, this strategy turns into a discounted long call strategy and so the upside profit potential for the bull calendar spread becomes unlimited.

The maximum possible loss for the bull calendar spread is limited to the initial debit taken to put on the spread. This happens when the stock price goes down and stays down until expiration of the longer term call.