FxWirePro: GBP/AUD moves in sync with trendline support - option straps on hedging grounds

Currency Hedging Perspectives: Straps

We urge our readers to square off all bearish positions if any and for now convert the same into strap on hedging mindset. Since the long term trend has been bullish and the technical signals have been favoring this healthy uptrend, we reckon the option strap that is more of customized version of combination suitable for more bullish sentiments.

With the below technical reasoning, unlike spreads, combinations allow adding both calls and puts at a time so as to suit the trend as we don't want to argue with the trends no matter what.. So, buy 15D 1 lot of At The Money -0.49 delta put option and simultaneously buy 2 lots of 15D At The Money 0.51 delta call options. It involves buying a number of ATM puts and double the number of calls.

Hence, any hedger or trader who considers above price targets and believes GBPAUD 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.

Technical Roundup:

It is a clear rounding bottom considering previous downtrend on monthly charts of GBPAUD, hence saucer pattern to prolong in long run which should evidence a long term uptrend. 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. Despite the strength index curve approached 80 levels (i.e. overbought territory) it was moving in convergence with rising prices. 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 and it is signifying slight indecision but there is no harm for strength in current prices. One can observe from the daily technical charts as well, the price behavior has been lingering with the below channel line where it has been consistently finding supports and bouncing towards north, thus far we have also been firm on our earlier targets of 2.2085 levels as continued uptrend is foreseen until those levels.