FxWirePro: EUR/GBP short combos – swing trading perspectives

EUR/GBP spot FX is currently ticking at around 0.7380 levels which is day low and yesterday's lows as well. It has shown a dip following the release of the UK's GDP report and the current account data. On the flip side Euro zone unemployment rate and the headline CPI number were worse than consensus, but EUR largely muted post data. We would see further dips in this currency cross in near future.

Buy 2M 2% out of the money -0.49 delta puts and simultaneously sell 2% out of the money calls  with comparatively shorter expiry (probably 7, 10 or 15 days time frame as suitable conditions). Use this strategy as EUR/GBP long term bearish environment holing strong despite intermediate attempts of bulls taking over rallies and wish to earn capital gains.

The objective of profit maximization can even be attained formulating EURGBP options combinations if you think you are running short of capital exposure for spot FX shorting, well.., you can very well do the same utilizing derivative combinations (both call and put) so as to leverage extraction.

We nearly replicated the short spot FX position by buying OTM puts and selling OTM calls. The net result is a virtually nil cost or even net credit trade that has uncapped risk potential as the EURGBP rises.

Advantage: With this strategy, you use no capital or negligible capital and yet are able to simulate a short spot FX position, and the ability to leg in and leg out as you wish.

Risk/Reward Profile: The risk is uncapped if the pair rises towards north, while the reward equals lower strike plus net credit, or less net debit.