FxWirePro: AUD/USD gamma calendar spreads to hedge downside risks

Prevailing implied volatility rates for AUD/USD is almost close to 12%.  Thus, on a long term hedging perspective, debit gamma put spreads are advocated so as to reduce the sensitivity and focus on hedging motive. 25-delta risk of reversals of AUDUSD the most expensive pair to be hedged for downside risks as it indicates puts have been over priced. As the risk appetite varies from different investors to different traders, we've customized our formulation of strategies for such varied circumstances.

At current spot FX ticking at 0.7290, Selling 1W out of the money call option is recommended to reduce the cost of hedging by financing long position in buying 1M out of the money gamma put options as the selling indications are piling up on daily and weekly graphs. So, buy 1M (-0.5%) out of the money 0.11 gamma put option and short 1W (1%) out of the money call option.

In the instance that we described above, let's suppose in 1 week time AUDUSD moves to 0.7290 - 0.7250 levels (i.e -0.5%) put instrument becomes in the money and its Delta increased from -0.5 to 0.45, Gamma is responsible for this change. Gamma controls the Delta. It is the mathematical formulae software) that decides the change in Delta based on a 1 point change in the underlying value.