FxWirePro: USD/CHF breaks trendline support – gamma spreads hedges potential drops

As it is traced out that the pair has failed to take the trend line supports at 0.9765 on daily chart, and these drops are extended today as well 0.9730 levels. RSI oscillator has confirmed the price drops with downward convergence. Stochastic in addition has also suggests overbought pressures and selling interests are intensifying. We foresee next strong support would be at 0.9650 level that would ensures further slumps measuring above channel level distance. So we expect pair to drag down until that level in short run, however major trend has been sideways upward.

USDCHF is the one among the highly volatility currency pool, the pair ranks under top three highest among major pairs to perceive volatility of ATM contracts, ATM contracts currently trending at 10% vols but a tiny shift in the underlying exchange rate would cause instant disaster to open postions. This can be arrested by devoting little time on ascertaining an accurate gamma.

Thus, buy 7D (+0.6%) in the money +0.26 gamma put option after squaring off this position short 7D (1%) out of the money put option. We've constructed this put spread by considering gamma closer to zero that would neutralize the implied volatility impact on option price and this position remains quite firm to achieve our hedging objectives, because we know gamma represents the change in delta, we have healthier delta at 0.46 on combined position. This results in desired hedging objective irrespective implied volatility disruptions as we've OTM shorts on one side.