FxWirePro: EUR/AUD breaks channel line support - vega spreads to speculate on HY vols

EURAUD looks like breaking channel line support back again to move towards south around 1.5315 levels, while leading oscillators also signal bearish calls as they are converging downwards to the dropping prices. RSI curve is currently trending at 50.8106 and %D line cross at 46 region (%D is around 29.7818 and %K is at 18.9664). Prices are falling well below moving average curve as well, so believe with all these bearish indications to drag this pair towards 1.5315 levels.

Ratio spread explained in brief: Well, it is good news for options traders who are keen on shorting as the implied volatility of ATM contracts of this pair is flashing at 17%. This is an income strategy. You are looking for a net credit if the pair stays within a range or rises.

Execution: EURAUD is currently trading at 1.5690. Add 2 lots of longs on 15D deep ITM strike vega puts, while shorting one 4D OTM strike put. Vega in a back spread is generally dominated by the long options the more time there is to expiration and the closer the stock price is to the strike price of the long options. The more time there is to expiration on longs set ups, generally the more positive vega the back spread. The reason for this is that far from expiration, the difference between the vega of one strike and the next is relatively small.