FxWirePro: NZD/USD knock-out puts carry attractive risk reward ratio

On technical grounds, we point out that last week NZDUSD has formed shooting star candlestick pattern at peaks of 16-months highs which is bearish in nature (at 0.7318 levels, see weekly chart). Diverging daily as well as weekly leading indicators, point to a lack of upside momentum. They suggest that a move below 0.7280 would be the initial sign of a pullback towards 0.7185, with next support at 0.7080.

Buy NZD/USD 2w put strike 0.7250 knock-out 0.70.

Indicative offer: 0.35% (vs 0.64% for the vanilla, spot ref 0.7280) as it sells convexity and volatility, this trade is intended to be a buy-and-hold position.

The maximum leverage will be reflected in the market value only a few days before the expiry.

In addition, volatility is likely to go up along with NZD weakness.

Risks is limited to the extent of initial premium paid, the premium will be fully lost if the underlying NZDUSD spot trades above the 0.7250 strike at the 2w expiry or if the exchange rate touches 0.70 at any time before the expiry.