FxWirePro: Extra ATM put in AUD/NZD option strips adds leverage effect

Technical glance:

We foresee the pair could still drag towards downwards up to 1.0747 levels. The prevailing prices of this APAC [air falls well below 10DMA that signifies the long term downtrend to prolong, while leading oscillators shows downward convergence to the price dips.

Currency Option Strategy:

The options strips were deployed anticipating more downside potential, now have a look at the diagram fro prevailing prices of ATM puts and they are moving in line with healthy delta. 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. More importantly the implied volatility of AUDNZD ATM contracts is at 9.24% which is good sign for option holders. The potential target on upside is about 50-100 pips where 100-130 pips on downside.

The rationale is that any potential downswings should be optimally utilized, so to participate in that downtrend, weights in the portfolio should be doubled with ATM puts.

What makes ATM instrument more productive in our strategy: the delta of this instrument is here at its fastest rate and gets faster as your position come closer to the expiration date. As a result, time decay may have a relevant impact on ATM options.

Hold 15D At-The-Money 0.50 delta call and simultaneously hold 2 lot of 1M At-The-Money -0.50 delta put options. Huge profits achievable with the strip strategy when AUDNZD exchange rate makes a strong move either upwards or downwards at expiration, with greater gains to be made with a downward move. From the diagram we can understand how the profitability can be maximized for every shift towards downside and this is not the same on upside.

Please be informed that the trader can still make money even if his anticipation goes wrong - but the underlying pair has to move in the opposite direction really fast. The 1 call bought has to beat the cost of buying all the options and still bring in some profits.