Long term GBPAUD option hedging insights

As it is sensed that all chances of sterling may plunge over Aussie dollar in short-medium term future, we advise to hedge the GBP's depreciation over AUD through below recommendations.

Option Strategy: 0.48 Delta Straps (GBPAUD)

Unlike spreads, combinations allow adding both calls and puts at a time in our strategy.

We recommend buying 2 lots of At-The-Money puts and double the number of (0.5%) Out-Of-The-Money calls.

These straps are more of customized version combinations and more bearish version of the common straddles.

The combination of the option instruments that is supposed to have 0.48 delta value with the same maturity.

Huge profits achievable with the strap strategy when the underlying currency exchange rate makes a strong move either upwards or downwards at expiration, with greater gains to be made with a downward move. The prediction of the investor here would be more increase in underlying currency; however, the gamble in this case is the rise in underlying asset is more likely than a dip.

Hence, any hedger or trader who believes the underlying currency is more likely to plunge downside can go for this strategy.

Maximum return = Unlimited.

Profit Achieved When Price of Underlying currency exchange rate > Strike Price of Calls/Puts + (Net Premium Paid/2) OR Price of Underlying currency exchange rate < Strike Price of Calls/Puts - Net Premium Paid.

Profit = 2 x (Price of Underlying - Strike Price of Calls) - Net Premium Paid OR Strike Price of Puts - Price of Underlying - Net Premium Paid.