FxWirePro: Reduced FX IVs among G7 space after Fed’s event, USD/JPY maintains highest level – fresh SPL for puzzling swings

From the above table, we can observe that 1 week contacts have reduced implied volatilities on the after the much awaited fed's meet which did not evidence any change in its rate policy, delta risk reversal for USDJPY is still highest negative values among entire G7 currency pool, this would mean that market sentiments for this pair have been bearish for this pair. The pair is likely to perceive higher implied volatility close to 10.8% of 1W ATM contracts (highest amongst the lot), thus we recommend deploying short put ladder spreads which would take care of potential slumps on this pair and significantly higher volatility times.

Currency Option Strategy: USD/JPY Short Put Ladder (SPL)
Rationale: unlimited downside and limited upside profit potential

This strategy has already moved in as per our predictions and yielded desired returns, for now we still believe that same fluctuations would repeat again. Hence, the execution should be in this way: Short 2D (1.5%) ITM put option and simultaneously add longs on 7D ATM -0.49 delta put option and one more 7D (-1%) OTM -0.19 delta put option. The delta of combined position would be at 0.11.

Maximum returns are limited to the extent of initial credit received if the USDJPY rallies above the upper breakeven point (BEP) but large unlimited profit can be achieved should the underlying exchange rate of USDJPY  makes a vivid downswings below the lower BEP.