Key Economic Fundamentals:

The yen eased further in Asia on Friday ahead of preliminary GDP data that is scheduled on next Monday.

Japan prints October PPI MoM -0.1% versus previous 0.0% and YoY -2.7% versus -3.2% previous.

On the data front, Canada is awaiting for today’s Poloz’s speech and manufacturing sales and core CPI MoM flashes during next week. While Japan eyes on Preliminary GDP QoQ.

OTC outlook & Hedging Framework:

In the major downtrend, CADJPY spot is testing to approach minor resistance at 79.816 levels and may struggle for sustenance and as a result, CFDs of this pair slightly have been drifting down.

While the implied volatility of 1m CADJPY ATM contracts are spiking higher 14.17% tenors.

3-Way Options straddle versus Call
Spread ratio: (Long 1: Long 1: Short 1)

Rationale: Since underlying spot FX is crawling up with mild upswings has the stiff resistance of 79.500 levels, shorting expensive OTM puts with shorter expiries would likely result in positive cash flow on expiration as the pair is testing supply zones and seems unlikely to show dramatic break out above.

On the contrary, we trust pair may move in either direction but capitalizing on steady IVs with no significant data drivers in short run that could bring in considerable IV spikes, Gamma of OTM strikes and corresponding IVs also in sensitivity table are reducing, thus such OTM instruments seem beneficial and deploy in our strategy.

The Execution:                                                     

Go long in CADJPY 1M at the money delta put, Go long 1M at the money delta call and simultaneously, Short 2W (1%) out of the money put with positive theta or closer zero.