FxWirePro: GBP/NZD options trading perspectives ahead of BoE – Long ATM straddles for major trend and Credit Call Spread for minor trend

In this write-up, we emphasize on two currencies ahead of monetary policy from their central banks. GBPNZD FX markets are likely to sense huge turbulence, and accordingly, we advocate below speculative options strategies ahead of central banks’ monetary policy seasons in both the UK and New Zealand (BoE is scheduled for today and RBNZ on September 26th).

The NZD is under pressure on the back of dovish rhetoric from Governor Wheeler, while the GBP remained calm but little bearish bias following its recent gains against major pairs.

While from last 10-11 months, GBPNZD is has been stuck in range although consolidating with more upside potential. In such scenario, options straddle is the best suitable in such turbulent option market circumstances, hence we load up longs in put as well as call with 50% delta. So, go simultaneously long in at the money call and, and limited risk to the extent of initial premiums paid options.

Long options straddle that is likely to fetch unlimited yields during higher implied volatility scenariosamid BoE’s. 

Well, this option trading strategy that is used when the options trader ponders that the GBPNZD would experience significant volatility in the near term but expects the swings in either ways.

The focus for the today is obviously on the BoE. External MPC member Kristin Forbes has showed her hawkish dissent in favour of an immediate interest rate hike. However, this meeting is unlikely to be a predominant market driver, as it is one of the interim meetings without updated projections and no press conference. After the August hike, we believe the BoE is on hold until next year. We do not think it is necessary for the BoE to send any new signals now. 

The accompanying release of the Bank’s Quarterly Inflation Report is likely to reaffirm that the committee remains in wait and see mode for now. CPI inflation over Q1 as a whole overshot the projections made in February, which is likely to force an upward revision to the 2017 CPI projection.

Well, in GBPNZD options, we now keep an eye on decisive breach strong support at 1.9873 levels. 

Hence, alternatively to the above-advocated strategy, although we could see some sort of bearish sensation we project the GBPNZD outlook to be in the range with major trend goes in consolidation phase, the recommendation is to go long in 2W ATM delta +0.51 call, and simultaneously short 2W (1%) ITM call for the net credit.

The lower strike short calls to reduce the cost of hedging, this would help in purchasing of at the money long calls and this strategic position is entered to reduce the cost of hedging.

Currency Strength Index: FxWirePro's hourly NZD spot index is inching towards 18 levels (which is mildly bullish), GBP at 70 (bullish), while articulating (at 07:12 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex