FxWirePro: USD/TRY debit call spread on minor corrections of healthy uptrend

With swing trading mindset, we are recommending to buy 1M 1% in the money 0.68 delta calls and simultaneously short 7D 1.5% out of the money call, the combined delta value should be around 0.45. We've shown in the diagram as to how the strategy can be built in. However, for the demonstration purpose expiries have been identical.

Why this call spread: As explained in our recent post, a short term correction is expected on this pair and because of this expectation, with a view of swing trading an OTM call shorting is advised. An investor often employs the bull call spread in moderately bullish market environments, and wants to capitalize on a modest advance in price of the underlying asset. If the investor's opinion is very bullish on USDTRY, it will generally prove more profitable to make a simple call purchase.

Risk Reduction: An investor will also turn to this spread when there is discomfort with either the cost of purchasing and holding the long call alone, or with the conviction of his bullish market opinion.

Risk/Reward Profile: Maximum loss for this spread will generally occur as the USDTRY declines below the lower strike price (i.e. 2.9141). If both options expire out of the money with no value, the entire net debit paid for the spread will be lost. The reward is that the bull call spread tends to be profitable when the USDTRY increases in price. It can be established in one transaction, but always at a debit (net cash outflow). The call with the lower strike price will always be purchased at a price greater than the offsetting premium received from writing the call with the higher strike price.