FxWirePro: Short leg of USD/ZAR CPS on its efficient functionality as Dollar drags gains against ZAR owing to Political turmoil in South Africa

Political risks returned to haunt emerging markets, with investors selling assets in South Africa, Turkey, and Korea. Shares in Europe rose for a third day while U.S. stocks were little changed.

South Africa’s rand tumbled to the lowest in four weeks and bonds declined amid speculation the finance minister will be replaced, while South Korea’s won weakened after North Korea conducted a missile test.

Option Strategy:

Just a week ago we had recommended credit put spread strategy, the spot FX of USDZAR has been spiked from 13.62 (spot when advised) to the current spot levels of 14.1362, one can follow below weblink for more reading:

http://www.econotimes.com/FxWirePro-USD-ZAR-%E2%80%9Ccredit-put-spreads%E2%80%9D-to-mitigate-risks-of-both-short-term-upswings-and-long-term-bearish-rout-%E2%80%93-a-run-through-of-theta-effects-on-ITM-shorts-265103

For now, the short leg seem to have been well performed so far as the premiums received on ITM puts would expire worthless, those who wish to add this strategy in their FX portfolio can still build this by entering into following positions.

We continue to maintain the following FX hedging portfolios via option spreads; we’ve just considered this option strategy with shorts in 1W (1%) ITM put with positive theta or closer to zero while buying 1M (0.5%) OTM put option; the strategy could be executed at the net credit.