FxWirePro: Execute bull calendar put spread on NZD/USD hedging

Fundamental reasons as to why Kiwi dollar showing strength against dollar: Kiwi dollar gained against U.S. dollar as anticipated in our earlier post owing to series of positives notes, namely, Fonterra's diary products being improved from previous numbers, upbeat manufacturing numbers of China (manufacturing PMI increased from previous flash of 47.0 to the current flash at 47.2).

Australia and New Zealand are the two pacific countries that have huge trade exposure with China. We predict Chinese slowdown may certainly impact adversely on NZD in future though short term gains are on the cards.

Vertical bull put spreads can be implemented considering prevailing uptrend in short run by selling a higher striking in the money put option with shorter expiry and buying a lower striking out of the money put option with longer expiry, so here goes the strategy this way, short 3D or 1W ITM put with positive theta while simultaneously buy OTM -0.37 delta put option of 15D or 1M expiry.

OTM options, the delta slows down its speed and becomes a number close to 0 for deep out-of the-money options. As a result, the impact of time decay becomes lower as options get deeper OTM.

For demonstrated purpose only we've shown identical expiries, use shorter expiry accordingly on short side on longer expiries on long side. If the pair shoots above the higher strike price on expiration date, ITM option expires worthless and the bull put spread option strategy earns the maximum profit which is equal to the credit taken in when entering the position at that stage, subsequently the pair begins to resume its long-term downtrend thereafter, the strategy accumulates profits.