FxWirePro: AUD/USD long guts on higher IV for speculators ahead of FOMC

Despite serious doji patterns have occurred on daily charts last  week at 0.7140 and 0.7012 levels and the uptrend looks like exhausted as RSI (14) today began diverging with price dips. While an attempt of %D crossover above 80 levels signifies oversold scenes on slow stochastic. But on weekly charts, it has been a buy as both oscillators showing positive convergence in oversold trajectories and signaling price recoveries. Overall, the major trend has been downtrend but short term trend reversal can be expected and initiate the below trade recommendations.

As you can make out from the diagram the implied volatility of 1W at the money contracts of AUDUSD pair has been highest in G20 currency pool almost at 16%. As a reminder, this higher IV represents how much movement today's FX market expects from AUDUSD during US sessions and the life span of the option. In that respect, an option buyer is partially buying the market's expectations for this pair.

Hence, on an absolutely speculation grounds we recommend buying 2% in the money calls and 1% in the money put option of similar expiries. Huge gains for the long guts strategy is attained when the underlying stock price makes a very strong move either upwards or downwards at expiration. The move in the underlying stock price must be strong enough such that either the long call or the long put rise enough in value to offset the loss incurred by the other option expiring worthless.