FxWirePro: GBP/CHF attempts to hold resistance at 1.5005, prefer diagonal debit put spreads to hedge, binary calls to speculate

BoE's Governor Carney has also made optimistic comments similarly to Yellen, of rates starting their slow normalization process around the turn of the year. This brings anything from November to February into focus, and has given the GBP another wave of buying support.

Technicals (GBP/CHF):

EOD and weekly technicals raises a caution for ongoing uptrend as prices do not evidence corresponding volumes and there was a sense of divergence evidenced on RSI curve to the rising prices. Both daily and weekly stochastic oscillator signals overbought situation as %D line crossover occurred above 80 levels which is overbought territory.

GBPUSD should remain in a choppy range now, with GBP outperforming in the crosses. EURGBP is expected to broadly remain under pressure with technical support at .6940/30 ahead of .6850/30. Resistance lies at .7040/50 and then .7125/35.

So, our recommendation would be buying 2M (1%) In-The-Money -0.63 delta puts and simultaneously writing an equal number of near-month (-1%) Out-Of-The-Money puts. The delta of combined position should be at around -0.22.

As shown in the diagrammatic representation, one can make out how the option payoff at expiry increases as the exchange rate diminishes.

This strategy is typically employed when the options trader is bearish on the underlying exchange rate over the longer term but is neutral to mildly bearish in the near term.

As there is intraday buying trend is on with positive technical indications, we see buying opportunities in binary calls for a targets of 15-20 pips.