Although Aussie dollar has been gaining from the last couple of days as the turbulence amid the U.S. election to weigh broadly on the greenback, the pair today is little changed against the dollar. As explained in our recent write up on technicals, the upswings are restrained at channel resistance and minor resistance at 0.7698 levels. From last three months, the price at this juncture has been held restrained and struggling to break out above this level.
As a result, let's suppose that we execute following option trading positions by shorting 1w (1%) OTM put for and short (1%) OTM call of the same expiry.
While going long in spot FX of AUDUSD of same outrights, the cost of going long in the spot would be almost equivalent to that of premiums received from writing options from two legs.
Most likely scenario: On expiration, if AUDUSD rallies above the strike price of 1% OTM call strikes, the 1w put what short would go worthless.
While the shorts on ATM call expires in the money and the total outrights should be settled or obligated, but remember you are holding spot positions, thereby, you could discharge the obligation.
Adverse scenario: Alternatively, if the spot price of the pair keeps dropping due to failure swings, short call expires worthless but the naked short put and spot long position suffer large losses.
The short put is now worth more than what has been received and needs to be bought back while the long spot position has lost.
Covered strangles is limited returns, unlimited risk options strategies similar to the writing of covered call. But including the total premiums received upon entering the option trade would render the certain profits, if the spot FX remains stagnant.


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