Hedge downside risk on currency exposure with BCS strategy

We've stated earlier the 'retail control' aggregate for April was expected to produce positive numbers but retail sales figure was weaker than expected.

Market participants were focusing on retail sales. These data were an important test that the recent consumption weakness was weather-related. Retail Sales in the US was increased 0.9% in April 2015 over the same month in the previous year.

Although the April headline gain was suppressed due to soft auto sales and lower gasoline prices, we were looking for solid increases in the remaining components of retail sales.

We noticed only a single element that is "disrupting weather" while dealing with the dichotomy between income and expenditures over the past few months.

We believe retrospectively that the weather also explains why we saw only a partial rebound in March retail data. The first week of March still saw extremely low temperatures in the Eastern and Central US and the heavy accumulation of snow probably did not melt until mid-month.

Derivatives Options Insights:
Strategy: Bear Call Spread

We could clearly foresee the downtrend in USDCAD and USDAUD may prevail further. As a result overseas businessmen are advised to safeguard their forex exposure in these spaces. We would like to generate effective hedging pattern for such uncertain circumstances.

How to establish: In order to create this position one has to sell a Call option and purchase another Call at a higher strike Price for a net credit.

Use a Bear Call Spread when you expect the underlying exchange rate to move lower or sideways so that the calls expire worthless and you pocket the entire premium.

A Bear Call Spread is better over short naked call since it has limited risk unlike unlimited risk in case of short naked call.

Short time for expiration is preferred to take advantage of the time decay and give the underlying exchange rate less time to move against you.