FxWirePro: Canada To Print Retails Sales Data - Uphold CAD/JPY Options Strips

CAD extends recent consolidation as fair value continues to drift from the recent high. The NZD and CAD are leading G10 gains against the USD intraday, although the broader risk backdrop is hardly constructive – European stocks are narrowly mixed following softness in Asia and losses for the North American markets yesterday.

Canadian retail sales data is scheduled for July 19th. The retail sales in Canada rose 0.1 percent month-over-month in April 2019, following an upwardly revised 1.3 percent gain in the previous month but below market expectations of a 0.2 percent increase. Sales at both gasoline stations (1.2 percent) and food and beverage stores (0.4 percent).

OTC Updates and Options Strategy: 

The positively skewed CADJPY IVs of 3m tenors have still been signaling bearish risks, the hedgers’ interests to bids for OTM put strikes up to 80.500 levels indicating downside risks in the medium terms (refer above chart). Please also observe the above technical chart for the major downtrend. Accordingly, we advocated options strips strategy to address any abrupt upswings in short-run and the major downtrend.

We’ve been firm to hold on to this strategy on both trading as well as hedging grounds, unlike spreads, combinations allow adding both calls and puts at a time in our strategy.

Buy 2 lots of 3m at the money delta put option and simultaneously, buy at the money delta call options of similar tenors. It involves buying a number of ATM call and double the number of puts. Please be noted that the option strip is more of a customized version of options combination and more bearish version of the common straddle.

Huge profits achievable with this strategy when the underlying currency exchange rate makes a strong move on either downwards or upwards at expiration, but greater gains to be made with a downward move. Hence, any hedger or trader who believes the underlying currency is more likely to spike upwards in short-run but major downtrend can go for this strategy. The cost of hedging would be Net Premium Paid + brokerage/commission paid. Courtesy: Sentrix & JPM

By Niranjan Patil
  • Market Data

Welcome to EconoTimes

Sign up for daily updates for the most important
stories unfolding in the global economy.