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FxWirePro: Use any USD/JPY abrupt rallies to build put ladders

We think current macro situations in US lead the fed rate hike almost in December, but in this another 1 month time for December meeting until then if worse numbers flashes in then again rate speculation would still be likely event which is negative for dollar as the regional fed heads in the past have made manipulative statements on this much awaited monetary policy outcome.

On the contrary, we should not disregard the fact that Yen against dollar to gain slightly at least in short run (let's say in next a months or so) with an anticipation of Fed may continue to hold on its rate stance until Q1'16 considering global economic slowdown, US job markets and recent US industrial production MoM getting contracted. A report on unemployment claims is the key focus for today.

The mixed bag of economic numbers would mean that market sentiments of this pair have been bearish. As a result, we reckon that for next 2 months time Yen may pretty much gain out of lots of manipulations and ambiguities are surrounding around dollar.

It is also understood that ATM contacts of USDJPY are gradually increasing implied volatilities after the much awaited fed's meet is underway that could prop up market speculations again (see current 1w & 1m contracts).

On the other hand, delta risk reversal for the pair is still second highest negative values among entire G7 currency space for next 1 week - 1 month, but we believe some short upswings may be utilized for shorts.

Make a note that the pair is likely to perceive implied volatility close to 9.5% of 1M ATM contracts that has increased from week's 8.5%, thus we recommend deploying short put ladder spreads that contains proportionately less number of shorts and more longs which would take care of potential slumps on this pair and significantly higher volatility times.

So, short ITM put with shorter expiry since implied volatility is inching higher which is good for option writers and buy 2 lots of ATM and OTM put with longer expiry.

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