Japan reported +0.3% a sharp jump from previous -0.2%, while the BoJ remains to pursue the most aggressive easing policy among the major central banks, but it is arguably not getting enough 'bang for its buck'.
We review the strategy and tactics around Kuroda's QQME regime and draw out the salient contrasts with the alternative approach adopted by the ECB.
Technical Glance:
Leading indicators to diverge the sideway trend, as a result short term downtrend is anticiapated.
Volumes are in conformity to the price slumps.
As a result, prevailing prices could not resist resistances and are slipping below 10DMA that signifies the current price drops would drag further to find strong support zone at around 90.50 levels to bounce back again.
Hedging Frameworks: Butterfly Spreads (CADJPY)
As stated in our earlier post, the time for Yen holding tight back again, all chances of Yen may look superior over Canadian dollar in medium term future but no dramatic differences in prices on either direction, thus we advise to hedge this pair with below recommendations.
On the contrary we believe CAD's loses are majorly due to crude's weakness. Currently the pair is trading at 91.051 with volatility of ATM contracts marginally inching higher (at 8.5%).
Hence, the recommendation on buying (-1%) OTM -0.24 delta put while simultaneously shorting 2 lots of ATM puts with similar expiries and buy (1%) ITM -0.74 delta put while simultaneously shorting another ATM put with similar expiries. This strategy is structured for a larger probability of earning a smaller but certain profit as CADJPY is perceived to have a low volatility.
The highest return for this strategy is achievable when the pair at expiration is equal to the strike price at which at the money options are sold. At this price, all the options expire worthless and the options trader gets to keep the entire net credit received when entering the trade as profit.
