From last couple weeks, we’ve been observing a sight weakness in this pair despite the major trend being bullish.
Elsewhere, in OTC FX market, the implied volatility of USDTRY ATM contracts with 1-2m tenors are quite at above 9.6% and above.
Whereas the premiums of 1M ATM calls are trading a tad below 16%, to be precise 15.96% more than NPV, hence, contemplating this disparity with implied volatility we eye over the opportunity lies in writing an OTM call while formulating below option strategy for gold's uncertainty at this juncture.
Hedging Framework:
3-Way Options straddle versus Call
Spread ratio: (Long 1: Long 1: Short 1)
Rationale: ATM premiums are trading higher than NPV, but the implied volatilities are not suffice and moreover we’ve seen the underlying spot price on technical charts losing buying momentum, so we conclude stating the disparity between premiums and vols that keeps us eyeing on shorting such expensive calls with shorter expiries. As a result, we capitalize on such beneficial instruments and deploy in our strategy.
So, here goes the option strategy to tackle the baffling this pair:
Go long in XAU/USD 1M At the money delta put, long in 3M at the money delta call and simultaneously, Short 1M (1.5%) out of the money call with positive theta.


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