OTC outlook:

As the delta risk reversals have again shown in bearish interests but as the positive change in negative numbers signify the traction for hedging sentiments for further downside risks but with a rebalancing hedging bets.

While the current ATM IVs are spiking above 11.5% and these vols are positively skewed on OTM put strikes.

Option-trade recommendations:

Short Box Spreads:

Contemplating above OTC indications we reckon short box spreads are right choice on arbitrage grounds.

To execute this option strategy, we recommend following FX option positions:

Short an ITM call and go long in OTM call, simultaneously short ITM put and add longs in OTM puts of the similar expiries. The short box is a strategy that is used when the spreads are overpriced with respect to their combined expiration value.

Essentially, the arbitrager is just buying and selling equivalent spreads and as long as the net premium obtained for the selling the two spreads is significantly higher than the combined expiration value of the spreads, a risk-free profit could be attained upon entering these positions. 

Bull/Credit t Put Spread (BPS):

As the risk appetite varies from different investors to different traders, we’ve customized our formulation of strategies for such varied circumstances.

On a hedging perspective, the foreign trader who are aggressively, expect slumps in the medium and long run but slight rise or sideway trend in short run, we advise  use upswings to deploy “credit put spreads”

Trade tips:

Well, any abrupt upswings should not be panicky, instead deploy them in the below option strategy.

Using these deceptive rallies, you decide to initiate a bull put spread at net credits that is likely to fetch certain yields, short 1W (-1%) in the money put with positive theta if you expect that EURJPY will spike up moderately over the next near future but certainly not beyond your imagination, simultaneously, buy next month at the money -0.49 delta put option.