The gradual increase in negative delta risk reversal numbers signify the OTC FX sentiments towards downside risk, as a result, puts seem relatively more expensive than calls as bearish momentum intensified in a long run.

While IVs are huge (1w-14.5%), and it is also gradually increasing from 1m-1y expiries that would mean that EUR/JPY's downtrend is intact in long run. But OTC volume index has not shown convergence with this indication.

These negative risk reversal is moving in tandem with rising implied volatilities which is quite reasonable as the volumes must also have been increased. It has been edging higher in case of EURJPY from 10.4% (1M) to 10.8% (1Y).

Our recent observation on the IV factor of ATM contracts with 1w expiry of Yen denominated currency crosses tops the list and same is the case with risk reversal table for highest hedging activities eyeing downside risks.

As we can very well understand the hedging activities of downside risks are mounting up, as a result ATM Put options seem costlier. Volatility smiles most frequently tells that traders are willing to pay higher implied volatility prices as the strike price grows aggressively out of the money.

Hence, with the current spot FX is trading at 130.92, the recommendation is to use higher vols to short ITM puts and add an extra-long on put with 1M expiry in the strategy.

For fresh short build up positions, gazing at short term upswings short 1 lot of 3D (0.5%) ITM puts with positive theta values, simultaneously go long in 2 lots of 1M ATM -0.49 delta put and (use shorter expiries on short side as stated in the strategy).

Traders tend to perceive this put ratio backspreads is more suitable for bearish trend, because it employs more puts. However, it is actually a volatility strategy.

Deploying the position when implied volatility is spiking higher and waiting for the inevitable adjustment is a smart approach, regardless of the direction of price movement. Based on volatility and time decay, the strategy is a "price neutral" approach to options, and one that makes a lot of sense.