FxWirePro spots out more efficient Thetas to sync with NZD/USD upswings, short leg on its effective functionality in diagonal PRBS

The underlying spot FX of NZDUSD likely to trade between 0.7200 and 0.7300, positive risk sentiment offset by a stronger USD. The US payrolls report tonight poses major event risk.

Well, we captured puzzling swings at the right time about a fortnight ago. It was trading at the spot reference: 0.7292 on 21st March that is where we at FxWirePro has advocated below-stated options strategy.

Bids on 1m skews have come in quite worthy, as they signaled the hedging interests both the sides, Accordingly, we’ve recommended diagonal put ratio back spreads in order to participate both momentary upswings in the consolidation phase and anticipated downside risks.

Writing 1m (1%) in the money put with positive theta snaps decisive rallies, you could easily make out short legs on ITM puts would go worthless considering time decay advantage. Simultaneously, we uphold 2 lots of longs in 3m 1% OTM puts, the structure could be constructed either at net debit.

It was explicitly stated that “Theta shorts are recommended in this strategy because, Theta is not a constant, it changes as the underlying market moves and time passes. Theta is the sensitivity of an option’s value to the passage of time. It is usually expressed as the change in value per one day’s passage of time.”

Well, for now, the medium term perspectives of this pair seems to be bearish as the US dollar remains in a two-month-old sideways range, which means further sideways ranging in NZDUSD is possible during the month ahead.

Further out, though, we are bearish. The NZ-US interest rate advantage is rapidly shrinking and should eventually weigh, pushing NZDUSD towards 0.69 by mid-year.

Moreover, the 6m skews are targeting towards OTM put strikes at 0.68 (refer above nutshell) which is in line with the above-mentioned projections.

Hence, on hedging grounds, the option the holder of OTM puts still desirable and is deemed to be on upper hand.

Currency Strength Index: FxWirePro's hourly NZD spot index is inching towards -15 levels (neutral), while hourly USD spot index was at shy above 110 (bullish) while articulating at 06:41 GMT. For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex.

FxWirePro launches Absolute Return Managed Program. For more details, visit: 

http://www.fxwirepro.com/invest

For more reading on our previous write-up, please refer below website:

https://www.econotimes.com/FxWirePro-Mounting-demand-on-NZD-USD-OTM-puts-ahead-of-FOMC--Bid-1m-3m-OTC-tools-to-deploy-PRBS-on-hedging-grounds-1213622