FxWirePro: EUR/GBP shooting star impacts daily prices – debit put spread still a right choice of speculation

A sharp shooting star pattern candle occurred at 0.7289 on weekly technical charts on 24th of August that is signifying down-streak again now in daily charting. This pair had bounced from 0.7031 (lows of 19th) to 0.7420 levels, that is the time when this bearish pattern formed. Since then you can observe the price actuion on daily chart. The convergence on RSI is seen on daily charts as it is trending near 57.1700 levels with a supportive signal from stochastic curve as %D line crossover above 80 levels which indicates overbought pressure. These signals can be attributed as supportive movers for those who expect price slumps.

As the short term uptrend of EURGBP was quite uncertain, bear put spread was advised over naked protective put as the premiums on naked puts proved too costlier. So, Bear Put Spread still goes this way = Long 1M ATM -0.5 delta Put + Sell 7D another -1.5% OTM Put with net delta should be at around -0.37.

So when you initiate a bear put spread rather than outright purchase of a put, you are limiting your upside potential. If the asset price falls like a rock, then you aren't able to fully participate in that movement because the lower strike price put that you sold will probably be exercised, limiting your gain.

Risk/reward profile: The highest loss for this strategy is limited to extent of the net debit paid for the spread. (i.e. the premium paid for the long position less the premium received for the short position). While the highest profit is limited to the difference between the two strike prices minus the net debit paid for the position.