FxWirePro: Option Greeks to optimize EUR/USD strips

Execution: The spot EURUSD is flashing at 1.1186 and we think the prices will make a significant move most likely in a downward direction. 2M At the money 0.51 delta calls (strike 1.1186) are trading at US$ 2253.18 and it is recommended buying 1 lot (size 100,000). Two lots of at the money 2M -0.48 delta puts (strike 1.1186) are trading at US$ 2147.46 lots (same size 100,000 of each lot) are recommended. The analysis tells you a big move is coming. You aren't sure of the direction, but you favor the downside. You enter a long straddle trade with an extra put in hopes of a move down. So thereby we've constructed option strip position at a cost of US$ 6548.10.

Rationale: From nutshell showing ATM volatility and delta risk reversal, it divulges that the fact that pair would experience little downside pressure in next 1-6 months future. The higher side volatility of EURUSD ATM contracts for next 3 months is projected. Although trend is puzzling on either sides the bearish momentum is likely to hold on. Huge volatility is expected over next 1-3 months.

Delta of far OTM options are very small. Negligible movement in EURUSD will not have much effect on the option premium. Theta will also eat premium every day. If the expiry is near and the option is still far, but we don't need to worry as we've selected far month contracts, it will actually decrease in value even if the pair moving in its direction in case of shorter expiry. After the significant news which is FOMC meeting on 17^th then the volatility crunches. The option premium will reduce anyway and the buyer has to fight this as well. If the strategy gets the move you expect, you'll profit. If the pair spikes up, that's fine too, but you'll need a pretty big move just to get back to breakeven.