FxWirePro: Doji on channel line breach signifies EUR/AUD potential slumps – OTM shorts on job, yields of longs on table

EURAUD breaks channel line support at around 1.5695 levels and maintaining that levels to move towards southwards, while weekly leading oscillators also signal bearish calls as they are converging downwards to the dropping prices. RSI curve is currently trending at 63.4991 and %D line crossover above 70 level (current %D is at around 65.9437 and %K is at 63.8143) on weekly charts. Prices are falling well below moving average curve as well, so we believe with all these bearish indications, the pair to drag towards 1.5315 levels to make next channel distance approximately.

Put writers must be alright with the current levels of this pair because on 21st September we advised OTM shorts with 4 day expiry and 2 lots of 15D longs on ITM puts. It would certainly be good news for writers who took shorts positions as the implied volatility of ATM contracts of this pair is reducing gradually from 15 to 14%, which means these shorts can never be exercised at current levels and remaining one day if the pair manages to hold current levels or even if it dips about 50-60 pips our writers would still be safe and enjoy initial premiums received.

EURAUD is currently trading at 1.5768 and if it holds this level for one more day and from then onwards our 2 lots of 15D longs on ITM strike vega puts would start functioning considering the current trend. Vega in a back spread is generally dominated by the long options the more time there is to expiration and the closer EURAUD is to the strike price of the long options.

15 days of expiration on longs sets up generally the more positive vega the back spread. The reason for this is that far from expiration, the difference between the vega of one strike and the next is relatively small. This is an income strategy. You are looking for a net credit if the pair stays within a range or rises.