We maintain long term bearish trend stance, while short term upswings could also to be utilized by below strategy. In our opinion, although some price recoveries that we've been seeing from last couple of days, monthly chart signals us the medium to long term bearish trend.
Currency Hedging Strategy: NZD/JPY Short Put Ladder
What does it do with current trend: Since the short put ladder is an unrestricted return with partial risk bearing strategy that is deployed because in addition to the puzzling uptrend in short term and downtrend in long-term, we think that the NZDJPY would also perceive significant volatility in the near term.
Short Put Ladder Spread profits in all 3 directions; When the pair goes upwards (strongly or moderately), remains stagnant or goes downwards strongly. Indeed, the Short Put Ladder Spread has made profitable 4 out of 5 possible outcomes which make its probability of profit extremely high.
With current spot FX at 80.486 levels, the strategy takes care of long term basis hedging motives and so far our short side of 1.5% ITM put option with shorter expiry is functioning as per our predictions of upswings in near term and for now we are awaiting the functionality of longs on 15D ATM -0.50 delta put option and one more long position on 1M (-1.5%) OTM -0.39 delta put option.
Maximum returns are limited to the extent of initial credit received if the NZDJPY rallies above the upper breakeven point (BEP) but large unlimited profit can be achieved should the underlying exchange rate of NZDJPY makes a vivid downswings below the lower BEP.
