FxWirePro: ITM short's leveraging effects on NZD/USD bull put spreads – longs functionality underway

Technical glimpse:

Even though the leading indicators on weekly charts suggest prevailing price recoveries to sustain further and may even show further strength in near future. RSI on daily has been exhausted in converging to the price bounces and it has not yet reached overbought territory began diverging, while %D crossover of slow stochastic curve above 80 levels which is oversold territory also alerts early selling pressures. So we cannot disregard continual bearish trend despite the upswings that we've been seeing from last couple trading sessions as the pair has been tumbling non-stop from the peaks in last April at 0.7736 levels to evidence the huge losses on weekly charts.

Kiwi dollar after continues losing streak that has begun from mid April, our ITM short puts have ensured profits as the pair showed recovery swings.

We stated already in our recent post that the vertical bull put spreads could be implemented considering prevailing uptrend in short run by selling a higher striking in the money put option with shorter expiry and buying a lower striking out of the money put option with longer expiry, so here goes the strategy this way, short 3D or 1W ITM put with positive theta while simultaneously buy OTM -0.37 delta put option of 15D or 1M expiry.

OTM options, the delta slows down its speed and becomes a number close to 0 for deep out-of the-money options. As a result, the impact of time decay becomes lower as options get deeper OTM.

The usage of shorter expiry on short side have ensured certain returns and longer expiries on long side would come in next future down streaks. We stated if the pair shoots above the higher strike price on expiration date, ITM option expires worthless. Now look at the spot FX and rest all is history. The profit maximization is now possible after this return by receipt of initial premium, subsequently the pair begins to resume its long-term downtrend hereafter.