Hedge Perspectives: Call backspreads
We believe GBPAUD uptrend has been quite healthy as the upswings are moving with considerable corrections at the right time, it has neither been steep spikes nor steep declines and you can make this out from daily charts as the oscillating indicators are also positively converging with price spikes and dips. Current 10 day moving average is evidencing long term uptrend remains intact.
Since moderately bullish trend is anticipated in medium term so we had set a target price earlier for this bull run to go beyond 2.1575 levels and utilize bull spreads to reduce risk. While maximum profit is capped for these strategies, they usually cost less to employ.
Buy 2M (2%) 2 lots of out of the money 0.35 delta calls, on expiry that would discount everything high impact news scheduled in September month while shorting 15D (-1.85%) in the money calls. We maintain these (ITM & OTM) levels in our strategy by keeping global macroeconomic aspects such as Fed's rate hike and BoE's speculation that may have adverse impact on this pair.
Why call backspreads: If the international trader is convinced that there is potential for upswing movements in the GBPAUD uptrend, increasing volatility, and is having currency exposures open then this is the appropriate option to use.
Advantage: The benefit is unlimited upside with only the difference in the strikes plus net debit.
Risk/Reward Profile: Maximum risk is to the extent of difference in strike prices minus net credit received or plus net debit paid. The reward is unlimited.
