FxWirePro: Diagonal option strip serves both hedging and trading AUD/NZD

Technical Glance:

Ever since the upswings are seen on this pair the leading oscillators have been showing upward convergence. RSI is currently trending near 60.3176, while %D line crossover on slow stochastic at around 80 levels signifies selling momentum is continuing. Currently, %D line crossover above 80 signifies overbought pressure for the moment.

More importantly, gravestone doji occurred at peaks 1.1193 levels with stochastic confirming overbought pressure which is bearish signal.

It is sensed that all chances of NZD may look superior over AUD in near term future but uptrend in medium term is intact, we advise to hedge the Aussie dollar's depreciation through below recommendations.

Option Strategy:

We've been firm to hold on this strategy on hedging grounds, unlike spreads, combinations allow adding both calls and puts at a time in our strategy.

Hold 1M At-The-Money 0.50 delta call and simultaneously hold 1 lot of 15D At-The-Money -0.50 delta put options with positive theta values and one more put option 15D At-The-Money puts after squaring off 1st option. The rationale is quite simple, in near term the pair may experience slight downswing momentum but we foresee healthy upswings back again in medium term future, so participate in that uptrend 1M call is deployed along with 15D put for hedging.

Huge profits achievable with the strip strategy when the underlying currency exchange rate makes a strong move either upwards or downwards at expiration, with greater gains to be made with a downward move.

However, for whatever reason, investors pursuing a strip strategy believe that the stock price is more likely to decrease than increase. Consequently, they purchase two puts to double their potential profits from any decreases in the stock's value. Hence, any hedger or trader who believes the underlying currency is more likely to plunge downside can go for this strategy.