FxWirePro: Writing USD/JPY call ladder proves profitable irrespective of swings

Already tensed markets on China and Greece were furthermore jerked by a sudden shut down in the NYSE for several hours overnight. Equities and commodities remained pressured, and bonds were bid. For FX that helped boost JPY even further.  

USD/JPY is now sub 121, which was also helped by a generally softer USD on FOMC minutes that sounded slightly more cautious because of external risks.

But the major trend for this pair uptrend only but short term hedging views have been bearish bias. Fund managers by adopting such strategies into their clients' portfolio block returns irrespective of markets being bullish or bearish. But by keeping wrong positions in trade with inaccurate computations may stuck in trade paralysis.

Currency Option basket: Write call ladder (USD/JPY)

To execute the short call ladder strategy the positions go this way,

The options trader has to sell an in-the-money call, simultaneously buy an at-the-money call and buy another higher strike out-of-the-money call of the same expiration date.

The bear call ladder may prove to be an unlimited profit, limited risk strategy in options trading that is employed when the options trader thinks that the underlying currency will experience significant volatility in the near term.

The recommendation would be, buy 15D At-The-Money 0.50 delta call and buy another 1M (1%) Out-Of-The-Money 0.35 delta call, simultaneously sell 7D (-1%) In-The-Money call option with positive theta.

Maximum returns for the short call ladder strategy is limited if the underlying movement in currency goes down. In this scenario, maximum profit is limited to the initial credit received since all the long and short calls will expire worthless.

However, if the underlying exchange price rallies explosively, potential profit is unlimited due to the extra long call. So, thereby we can block returns on either side of the directions.