FxWirePro: Deploy EUR/JPY ITM delta puts bidding on 3m IV skews and RRs

EURJPY has been attempting to consolidate but the major downtrend remains intact. JPY appreciated sharply in February 2016. 

EURJPY Hedging Skewness: Please be noted that the positively skewed IVs of 3m tenors are signifying the hedging interests for the bearish risks. The bids for OTM puts of these tenors expect that the underlying spot FX likely to break below 121 levels so that OTM instruments would expire in-the-money. Even hectic delta hedging would not help anyone who bought 1-week volatility at 5.05% at the start of last week.

Risk-Reversals: To substantiate the above indications, bearish neutral risk reversal numbers of all euro crosses except EURGBP (especially EURJPY) across all tenors are also substantiating bearish risks in the long run amid minor abrupt upswings in the short-term. IVs for 2w tenors are on the lower side which is interpreted as conducive for put option writers, and 3m IVs are trending between 6.37% - 8.49% which is conducive for the put holders.

Overall OTC barometer is a noteworthy size in the forex options market that can stimulate the underlying forex spot rate. 

Options Trade Tips (EURJPY): Buy 3m EURJPY (1%) ITM -0.69 delta puts for aggressive bears on hedging grounds. If expiry is not near, delta movement wouldn’t be 1-point increase with 1 pip in the underlying spot FX. Which means if the spot FX moves 1 pip, depending on the strike price of the option, the option would also move less than 1. Thereby, in the money put option with a very strong delta will move in tandem with the underlying. Source: Sentrix, and Saxo

Currency Strength Index: FxWirePro's hourly EUR spot index is flashing at 65 levels (which is bullish), while hourly JPY spot index was at -136 (highly bearish) while articulating at (10:05 GMT).

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