From the nutshell showing delta risk reversal of ATM contracts, it is understood that the ATM calls have been on high demand (this is just the resultant sentiments from recent rallies) and looks overpriced which divulges the market sentiments for USD/JPY pair. But if you have to observe on an order flow analysis these are nothing but the speculating movements.

It also reveals the hedging activity for downside risks are intensified anticipating from 1 week to next 3 months in it is going in favor of Yen.

As a result we come up with suitable hedging framework for slight downside risks. Place call ratio spread with 1:2 ratios. Current USDJPY FX spot is ticking at 120.405.

How to execute: Buy ITM (116.127) 0.5 delta call with longer expiry (let's say 1m tenor). Sell two lots of OTM strike calls (124.275). Thereby, we've formulated the strategy so as to suit the delta risk reversal.

The delta value becomes more and more insensitive as the USD/JPY falls lower and lower and hence on the lower side, the delta value is zero.

On the higher side, it increases in magnitude but remains negative indicating the negative effect on the option trader position with the pair rallying.

Why call ratio spread: As the pair has made steep slumps and healthy recovery we see a neutral to bearish environment when you are projecting decreasing volatility (see from next 1 month to 3 month it's been gradually reducing)

Advantage: If you guessed correctly and the pair remains range bound or declines in short run, net credit earned.

Risk/Reward Profile: The risk is unlimited. The reward is the difference in the strike prices plus the net credit, multiplied by the number of long contracts.