The ATM IVs of USDJPY of 1w expiries are trading at 15.65%, while ATM premiums are trading 9.37% more than NPV.

Since the Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows, FX traders need to be cautious while choosing the fairly valued options.

The components of option value include intrinsic value, its time value and the implied volatility of the underlying asset.

So contemplating the difference in the option value and its IVs of the same tenor, we think put premiums are fairly priced in.

Well, being right or wrong doesn’t matter as long as your portfolio is able to generate positive cash flows as per George Soras.

How much more money you made when you are right and how much less you lost when you are wrong is all that matters.

There exists the role of shrewdness in our hedging or speculative strategies, which instruments to use (futures, options, forwards or what not). To move a step ahead, if it is to be selected FX options then which strikes are to be selected.

If you observe the sensitivity table, we tend to choose the OTM strikes of 10 Days to expiry so as to spot out the more productive and to give a leveraging touch to FX portfolios as these put instruments of OTM strikes evidence the healthy gamma and higher vols with higher probability numbers. This would mean that the more likelihood of expiring in the money on expiry.

On the other hand, while hedging for downside risks if you’ve chosen OTM strikes then you would be on competitive edge as these contracts would likely benefit in two ways, one that is to reduce hedging cost as OTM contracts would be cheaper than ATM and secondly, more chances of tackling negative risk reversals as per the above Greeks computations.