FxWirePro: USD/RUB debit call spreads for swing traders

USDRUB is likely to resume its uptrend back again and has been continuing non-stop streak of rallies upto 71.6191 (highs of 24th August), we think that markets will square positions ahead of the FOMC decision on September 17. With only a one-third chance of a lift-off at that meeting, we see limited downside risks to the USD in the short term and keep our bullish medium-term view.

Execution: Buy 15D (1%) in the money 0.50 delta call option while shorting 7D (1%) out of the money call option for net debit.

Why call spread: An investor with a bullish mindset often deploys this strategy for targeting upside potential upto 70.5445 and wants to capitalize on a modest advance in price of the USDRUB. If the investor's opinion is very bullish on this pair, it will generally prove more profitable to make a simple call purchase. If any probable slumps would take care by short side with shorter expiry (7 days).

Risk Reward profile: An investor will also turn to this spread when there is discomfort with either the cost of purchasing and holding the long call alone, or with the conviction of his bullish market opinion.

Maximum loss for this spread will generally occur as USDRUB declines below the lower strike price. If both options expire out-of-the-money with no value, the entire net debit paid for the spread will be lost.

The reward is that it tends to be profitable when the pair rallies. It can be established in one transaction, but always at a debit (net cash outflow). The ITM call will always be purchased at a price greater than the offsetting premium received from writing the call with the higher strike price.