FxWirePro: AUD/CHF losing streak to prolong – capitalize on option combinations

Technical Roundup:

Long term technical charts of AUDCHF have been a slant decline. But contemplating the previous long term downtrend, we think this pair had taken a brief pause while a slight recovery took place in this month, bounces from last month's lows of 0.6532 to this month's highs of 0.6999 levels. It can't be deemed as the pair continues to flow in the same direction but instead its long lasting loses hold sturdy in near future.

The current prices have fallen well below moving averages and both leading indicators (RSI & stochastic curves) have reached oversold zones but no clear trace of buying interest. This would boost up the long term bearish trend to prevail.

Currency Hedging Framework:

So for now we are capitalizing this ongoing downtrend by using recovery rallies with an objective of profit maximization. It can be attained formulating AUDCHF options combinations if you think you are running short of capital exposure for spot FX shorting, well.., yes you can very well do the same utilizing derivative combinations (both call and put) so as to leverage extraction. We nearly replicated the short spot FX position by buying OTM puts and selling OTM calls. The net result is a virtually nil cost or even net credit trade that has uncapped risk potential as the EURGBP rises.

AUD/CHF spot FX is currently trading at 0.6885. Buy 1M 1.5% out of the money -0.49 delta puts and simultaneously sell 1.5% out of the money calls  with comparatively shorter expiry (probably 7, 10 or 15 days time frame as suitable conditions).

With above technical reasoning, use this strategy as AUD/CHF long term bearish environment holding stronger despite intermediate attempts of bulls taking over rallies and wish to earn capital gains.

Advantage: With this strategy, you use no capital or negligible capital and yet are able to simulate a short spot FX position, and the ability to leg in and leg out as you wish.

Risk/Reward Profile: The risk is uncapped if the pair rises towards north, while the reward equals lower strike plus net credit, or less net debit.