FxWirePro: GBP/AUD correction over - uptrend to resume; option straps for hedging perspectives

Technical Glance:

We had spotted out a clear sell call on this pair 04^th August. You can observe what has happened, however the extended effects do not seem to persist for long run.

While we were designing long term hedging framework 14 week RSI was used with an objective to track price momentum over medium to long term perspectives. When the strength index curve approached 80 levels (i.e. overbought territory) a steep divergence is evidenced around 2.1467 price levels. But this price discrepancy is corrected and brought back the pair for rallying again with abundant volume confirmation. For a swing trader it is all too easy to be carried away by a market that apparently knows no bounds. While slow stochastic on the other hand has remained in overbought territory but %K line crossover above 80 levels which is signifying strength in current prices.

Currency Option Strategy:

We now want to square off the positions in strips, book the profits and for now convert the same into strap on hedging grounds. Unlike spreads, combinations allow adding both calls and puts at a time in our strategy. So, buy 15D At-The-Money delta put option and simultaneously short 2 lots of 15D At-The-Money delta call options. It involves buying a number of ATM puts and double the number of calls. The strap is more of customized version combination and more bullish version of the common straddle.

Hence, any hedger or trader who believes the underlying currency is more likely to surge upside can go for this strategy. Maximum returns can be achievable when the underlying exchange rate makes a strong move either upwards or downwards at expiration but with greater gains to be made with an upward move. Cost of hedging would be Net Premium Paid + brokerage/commission paid.