FxWirePro: EUR/AUD derivatives straps to enable participation in upswings

On long term charts the pair holds stronger on upside and short term trend is upward bias. RSI (14) curve converges the rising prices and slow stochastic states uptrend remains intact (%K line at 71.9424 & %D line at 53.1848). But contemplating current negative fundamental draggers of euro we came up with a customized strategy which is more suitable in such conditions.

As it is sensed that all chances of Aussie dollar may look superior over Euro in medium term future, we advise to hedge the Euro's depreciation over AUD through below recommendations.

Currency Hedging Perspectives: Option Straps (EURAUD)

Unlike spreads, the combinations allow adding up both calls and puts at a time in our strategy.

The rationale being there are all possible chances of rising prices in EURAUD as per technicals, but one negative news is suffice to wipe off euro's gains. The technicals take care of fundamentals assumptions and it is not the other way round. Therefore, keeping that in mind we've kept our options open.

The strap is more of customized version of option combination and more bullish version of the common straddle.

It usually involves buying a number of puts and double the number of calls, but here with same positions we preferred deploying At-The-Money instruments on calls and Out-Of-The-Money instruments on put side.

Hence, strategy reads this way,

Buy 2 lots of 1M At-The-Money delta calls and buy another lot of 15D Out-Of-The-Money put delta put option for a net debit.

Huge profits achievable with the strip strategy when the underlying currency exchange rate makes a strong move either upwards or downwards at expiration, with greater gains to be made with a downward move.

So, any hedger or trader who believes the underlying movement in currency is more likely to surge upside can go for this strategy.

Cost of hedging would be Net Premium Paid + brokerage/commission paid.