FxWirePro: EUR/AUD bulls seem to be exhausted and put writers complacent – long vega puts functionality underway

Put writers must be alright with the current levels of this pair (EURAUD spot fx at 1.5575) because on 8^th October we advised OTM shorts with 4 day expiry which must have definitely booked profits as the price moved above from last 2 days and now is the time for 2 lots of 15D longs of ITM puts that should be on the job with dips which is underway.

The pair has broken channel line support earlier at around 1.5917 levels and yesterday it has formed a gravestone doji pattern. We believe with this bearish indication the pair to either remain stagnant or drag towards 1.5475 levels if it breaks current levels of 1.5554 which is a trendline support.

EURAUD spot FX is currently trading at 1.5587, from here onwards our 2 lots of 15D longs on ITM strike vega puts would start maximizing profits considering the current short term downtrend. Implied volatility of EURAUD ATM contracts are perceived at 13.38%.

Vega in a back spread is generally dominated by the long options the more time there is to expiration and the closer EURAUD is to the strike price of the long options.

15 days of expiration on longs sets up generally the more positive vega the back spread. The reason for this is that far from expiration, the difference between the vega of one strike and the next is relatively small. This is an income strategy. You are looking for a net credit if the pair stays within a range or rises.