FxWirePro: Fed’s rate hike expectation in September sneaks demand for EUR/USD long butterfly

We are firm with our recent call on EUR/USD, for those who don't like to accumulate either existing shorts on EUR positions or not longs dollar side with minimal delta terms; instead, better to take long term neutral positions such as option butterflies. This offers stiff hedging arrangements; these can be utilized in as a means of hedging instruments until the better clarity on how global factors will pan out (especially Greece matter on euro side which is almost taking a halt with bailout plan but Fed's rate decision on dollar side). 

Therefore, buying 45D (+1.75%) Out-Of-The-Money (strikes at 1.1243) 0.33 delta call, buy another 45D (-2%) In-The-Money (strikes at 1.0855) 0.68 delta call and simultaneously sell 2 lots of 45D At-The-Money calls with positive theta values. All the positions should be early September maturities. As the delta on butterflies would usually be zero, this option combination should also be close to zero.

We reckon, this butterfly spread is best suitable and enables market laggards, risk averse traders, speculators who've been bias on both Fed's hike news to participate in market turbulence as it brings in limited returns and limited risk.

Hedgers whose is neutral on irrespective market making matters but involved with their international business, this would arrests systematic risks.

Long butterfly spreads are entered when the investor thinks that the underlying exchange rate will not rise or fall much by expiration. Last 3 candles on monthly chart remain in sideways did not indicate anything much on either side. One additional long position would result in net debit.