FxWirePro: USD/CAD’s 11-year highs drifting away from trendline support but delta risk reversal indicates upside risks

Technical glance:

Currently the pair was not able to sustain its 11 years highs of 1.3352 levels and has breached trendline support at 1.3232 levels; if we have to compare the same with weekly plotting then we arrive with an attempt of signaling overbought pressure. And on monthly chart, it evidences the saucer pattern a rounding bottom of the prolonged downtrend can used to suggest that the long term trend is reversed. But let's wait for more confirmation for another 2-3 days in order to come up with long term stance.

Hedging Perspectives:

Since delta risk reversal of this pair divulges expensive hedging upside risks, as per the delta risk reversal computation in the money calls are overpriced premiums. In order to reduce the hedging costs, and those who expect the USDCAD to make a large move higher, then this strategy can be established as follows.

But for now on hedging grounds, having a short to medium term timeframe in mind, purchase more number of out of the money +0.5 delta calls and sell in the money calls with a shorter expiry usually in a ratio of 2:1. The delta value remains high on the upside of underlying value as more and more upside price movements of the underlying makes the option position more sensitive to the relative change in USDCAD exchange rate. So the lower strike short calls finances the purchase of the greater number of long calls and the position is entered for no cost or a net credit. The dollar has to make substantial move on the upside for the gains in long calls to overcome the losses in the short calls as the maximum loss is at the long strike.