FxWirePro: EUR/JPY debit gamma spreads ensure risk reward profile for risk averse on hedging front

Technical Glance:

It is perceived as risky to have opened naked position on highly volatile non directional trend. EUR/JPY is now alike a non directional pattern as this pair is boiling up with lots of bearish candles but takes a strong U turn in attempting to recover, an inverted hammer like candle appeared at 134.401 levels.

On weekly technical graphs, %D line crossover on slow stochastic above overbought trajectory signifies the diminishing buying interest in this pair. While, RSI (14) is currently trending near 58.2194 levels with downward convergence to the price dips.

Although the there is no trace of either overbought or oversold situation, but on intraday trading alarms bears trying to take over the rallies as the slow stochastic noises with %D line cross over near 60 levels (current %D line flashes at 57.7251).

Option Currency Hedging: Debit put spreads

As the risk appetite varies from different investors to different traders, we've customized our formulation of strategies for such varied circumstances.

The naked put option was highly sensitive to moves in the underlying exchange rate of EUR/JPY when gamma was at around 0.32. We think it adds to the risk and reward profile for both holders and writers.

Thus, on a long term hedging perspective, debit gamma put spreads are advocated so as to reduce the sensitivity and focus on hedging motive. Selling an Out-Of-The-Money put option is recommended to reduce the cost of hedging by financing long position in buying In-The-Money Puts as the selling indications are piling up on weekly graph.

So, buy 15D (1%) In-The-Money -0.69 delta put option and short 15D (-1%) Out-Of-The-Money put option for net debit.