FxWirePro: Use AUD/NZD upswings to reduce hedging cost – backspreads are better over strips

If you missed on put ratio spreads when recommended our 1st call on this pair on 2nd September. It would never knock our doors often and often. Consider this as 2nd chance for speculating opportunity and 2nd chance for reducing hedging cost. Both weekly and monthly graphs suggest bearish signals, the spinning top on peaks with substantial volume confirmation, more importantly a long real body bearish candle occurred at 1.0924 with huge volumes. While %D crosses over near 80 levels indicates overbought scenes. Leading oscillator (RSI) is converging according to the price dips and rises, states indecision at this stage but little bias towards south. Contemplating the previous long term downtrend we think the pair is likely to head towards downwards. RSI is currently 53.1312 and %D line is at 48.6712 and %K line at 48.5444 on slow stochastic.

Put Ratio Back Spread: AUD/NZD

For now, with the above technical reasoning, we recommend arresting further downside risks of this pair by hedging through Put Ratio Back Spread.

The reason for depleting strips and deploying back spread is that it is proportionately less chances of spiking in short run, but to mitigate any abrupt upside risks and safeguard our targets downside 2 out of the money puts are suffice with 1 short. Expect the underlying currency exchange rate of AUDNZD to make a larger move on the downside.

Thus, purchase 1M 2 lots of At-The-Money -0.51 delta puts and sell 1M one lot of (1%) In-The-Money put option. The short ITM puts funds to the purchase of the greater number of long puts and the position is entered for no cost or a net credit. The delta of combined positions should be around -0.39 with slightly negative theta value.