We could foresee lot of speculations happening around USDJPY currency cross.
The US was able to produce upbeat NFP numbers at 211K vs forecasts at 201K and no change in unemployment scenes.
But despite good set of preliminary GDP Q/Q numbers in U.S. and trade deficit has been contracted from previous 59.1B to 58.4B, dollar has been adversely reacting to these fundamental indicators.
This lackluster move is confirmed by the sluggish consumer confidence numbers (reported at 90.4 versus previous 99.1).
On the flip side, Japan reported healthy retail sales numbers at 1.8% versus previous -0.1%.
While industrial production is also improving from 1.1% to 1.4%.
Delta risk reversals of USDJPY for next 1-3month seem to signal the downward direction for this pair, dollar rebounds as per delta risk reversal computation coupled with various recent booming economic numbers of U.S and certainty on Fed's event on rate hike decision.
We don't see any reasons to short dollar but short term corrections up to 121.991 (23.6% fibo levels).
So, short ITM put with 3D expiry since implied volatility is inching lower which is good for option writers and buy 2 lots of ATM and OTM put with 10D expiries.
It is also understood that ATM contacts of USDJPY are gradually reducing implied volatilities (second least IVs which is good for option holders) ahead of much awaited fed's meet which is underway that could prop up market speculations again (see current 1w & 1m contracts).
We've combined positions with buying at the money and out of the money puts and, simultaneously, shorting an in the money put as well, these in the money puts are always at risk of exercise, but you have two advantages.
First, assignment can be covered by the long puts; second, time decay and implied volatility work in your favor on the short puts. This points out the importance of entering the position when implied volatility is higher than average.
