FxWirePro: EUR/USD 1W IVs conducive for speculators “iron condor spreads” as trend lurks between deep OTM strikes

EUR/USD’s non-directional pattern is persisting from more than last one year or so, but some bullish neutral indications are observed, slight bearish pressures can be seen in the months to come, hence, there is a massive collapse in implied volatilities as well an OTC FX market.

From here onwards the pair should keep the consolidative theme in the weeks to come.

As highlighted yesterday, despite the improved shorter-term indicators, it is not enough to suggest the start of a sustained up-move in EUR.

On northwards, as long as 1.1120 can hold, another attempt to move higher towards 1.1461 is not ruled out even though the vision for such a move has lowered after the brief pull-back today soon after German upbeat GDP data.

Overall, the neutral phase remains intact and only a clear break out of the expected 1.1020/1.1260 sideway trading range would indicate the start of a sustained directional move.

OTC Outlook and Option Strategy:

1W ATM IVs are at least levels (shy below 6%) with neutral risk reversal sentiments, we foresee the chances of the sideway trend to prevail further.

Since the EURUSD's implied volatility is perceived to be comparatively minimal from other major G7 pairs and neutral risk reversal sentiments, speculators in this range are on competitive advantage, accordingly, we construct a multiple leg of option strategy for regular traders of this currency cross when there is little IV. A total of 4 legs are involved in the condor options strategy and a net debit is required to establish the position.

Just a fortnight ago, we had advocated iron condor option strategy and it seemed to have fetched the desired yields as the trend moving still in choppy range.

Well, we continue to use the same options expiring on the same expiration month, the option trader creates an iron condor by selling a lower strike OTM put and buying an even lower strike out-of-the-money put, similarly shorting a higher strike OTM call and buying another even higher strike out-of-the-money call. This results in a net credit to put on the trade.