FxWirePro: Laggards who expect Fed’s hike in September hedge EUR/USD using long butterfly

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. We have some smart trading arrangements; these can even be utilized in our model the assortment of portfolio until the better clarity on how these global factors (especially Greece on euro side & Fed's decision on dollar side) will play out.

Therefore, buying 2M (+2%) Out-Of-The-Money (strikes at 1.1412) 0.34 delta call, buy another 2M (-2%) In-The-Money (strikes at 1.0964) 0.67 delta call and simultaneously sell 2 lots of 2M 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 and Grexit matters to participation 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. One additional long position would result in net debit.