FxWirePro: GBP/JPY to experience low IV but slightly bullish- delta call ratio spread for hedging

Although EOD chart suggests some bearish candles such as 'shooting star (at 193.576)' appears on GBP/JPY's at peaks of uptrend, this should not be deemed as reversal as leading oscillator RSI (14) moving in positive convergence with price rallies. Moreover, weekly chart holds good for long term bull rallies. Event hough some minor corrections are expected in near term but long-medium term sentiments bias towards north.

Long term overview: Sideways or slightly bullish

As a result of above technical observation we look ahead for slight dips in the near future but uptrend holds stronger. More importantly implied volatility for this pair is seen at 8.8% which is quite lower side and it is expected to lower further. It has been closely monitored the UK's fundamentals and its currency fluctuations, uptrend on GBPJPY is intact and but we also reiterate any necked positions are not advisable at this juncture.

We therefore recommend "call ratio spread" as the pair is likely to remain either sideways or slightly bullish in our view. It is a limited profit, unlimited risk options trading strategy that is taken when the options trader thinks that the underlying stock will experience little volatility in the near term. This would result in a stiff hedge and a safe attractive profitability for traders.

Buy far month In-The-Money 0.50 delta call option and sell 2 lots of near month Out-Of-The call option at a higher strike price. Buying call spread in addition to selling more necked call options constitutes this hedging position. The portion should ideally be constructed in the ratio of 1:2 or 1:3. Use shorter expiry on shorts side and abundant time for long side. One can get benefitted from probable price falls in coming days by leveraging advantage through shorts side using near month contracts. Breakeven will be at:  short strike price + difference in strike price + net credit.