FxWirePro: Short EUR/USD shrinking vols using 'Short Condor Spreads' ahead of ECB and US unemployment claims

We expect no policy action from the ECB that is likely to announce shortly but a small, and rare, upward adjustment to the staff inflation projections.

In Spain, we expect a large decline in unemployed (-71.2K after -83.6) given favourable seasonal factors and still strong economic growth, but the drop since the beginning of the year should only reach 150K vs. 230K Jan-May last year

ADP’s preview to Friday’s nonfarm payrolls numbers should point to a small bounce in the number of new private jobs created in May. We expect private payrolls to have risen by 162K, up from 156K in April. . Also today, initial claims are likely to have regained their balance at 265K, after entering May on an elevated note.

Please be noted that the IVs have been shrinking away on EURUSD OTM calls of 1m tenors. Difference between historic vols and implied vols is notable and escalates caution to the option holders.

While, skews suggest that OTM puts have been footing into desired outcomes of bears as retest of recent lows seems more likely.

Well, matching these OTC indications as well as significant economic events are on table, the short condor is advocated which is neutral on either side resembling short butterfly

From this trading strategy, one can expect limited risk and limited returns that is structured to earn a profit when the underlying spot is perceived to be making a sharp move in either direction.

Using calls, the options trader can setup a short condor by combining a bear call spread and a bull call spread.

The trader enters a short call condor by buying a lower strike ITM call, selling an even lower striking in-the-money call, buying a higher strike OTM call and selling another even higher striking out-of-the-money call.  A total of 4 legs derives a net credit on entering the trade.