FxWirePro: USD/CAD covered call on rallies as pair nearing trendline resistance

USD/CAD is currently trading at 1.3136 levels which is likely heading towards trend line resistance at around 1.3268 levels. So if options trader decides to write September month 1.3107 covered call for C$139.16 and simultaneously to buy USD10000 at spot FX by paying 13118 and receives C$139.16 in premium giving a net investment of $12978.84.

If the exchange rate breaks the above mentioned resistance at expiration and the call gets assigned. As per the options contract, the trader has to sell the 10000 units of US$ at the striking price of 1.3107 and so he receives C$13107 for the net US dollars sold as obligated. Since his original investment is $12978.84, his net profit for the entire trade is only $128.16.

However, should the USDCAD price collapses to below $1.3107 instead, he still makes a profit since the $136.16 in premiums received more than offset, At that juncture, the call most likely will not get assigned since there is no intrinsic value left in the option.