FxWirePro: USD/JPY delta risk reversal reaching dangerous zone – further slumps anticipated

The pair was unsustainable holding onto the resistance at 121.50 levels on weekly charts, leading RSI oscillator showing convergence with falling prices. We've been reiterating that it is not going to be steep recovery, now look at the USDJPY prevailing price 119.051 and lows of last week 116.072.

From the nutshell showing delta risk reversal of ATM contracts, it is understood that this pair is most likely head towards south among G7 space and the ATM put instruments have been on high demand but overpriced which divulges the market sentiments for USD/JPY pair. The hedging activity for downside risks are intensified anticipating from 1 week to next 3 months in it is going in favor of Yen.

Trade tips:

In our opinion, it would certainly not be sharp spikes for this pair for sure until Fed's meeting, so keeping this in mind, at the money or out of the money call shorting is recommended as a speculation basis. Thereby, high premiums on call shorting can be certainly locked in as our return. The main objective of writing naked calls is to collect the premiums when the options expire worthless. Those who've followed our call earlier would have pocketed the premiums that they've received on shorting calls.

If you understand that puts have been overpriced and any call option gives the holder the right, but not the obligation, to buy USDJPY at a predetermined price on a certain date, it's time to think about the other side of that transaction. In order for someone to buy the call option, someone has to have sold the right to that person. The person buying the call option hopes the price of the underlying asset will go up, and the person who sold that person that right is hoping the price will continue to remain the same or slip down and such is the case with USD/JPY.