FxWirePro: Deploy ‘Diagonal Options Straps’ to Hedge CAD/JPY Consolidation Phase

CADJPY poised to test support in mid-82 area. Peak-stress in oil over the last month has re-elevated the importance of WTI for CAD. Throughout much of 2017-2018, CAD became relatively less sensitive to oil as modest price ranges were eclipsed by US-CA rate spreads and broader cyclical considerations.

Options Trading Strategy (CADJPY): Ahead of Canadian unemployment data, 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.

We’ve been firm to hold on 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.

Currency Strength Index: FxWirePro's hourly CAD spot index is flashing at -17 levels (which is mildly bearish), hourly JPY spot index was at 48 (bullish) while articulating at (11:29 GMT). 

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