FxWirePro: Prefer AUD/JPY combinations over naked options on hedging

Australian housing finance approvals to owner occupiers fell sharply in May with the 6.1% drop coming below expectations of a 3% decline. Weak industry data had indicated some downside risks to the month - these clearly materialised. The number of approvals is now down 1.9%yr.

On the flip side, Japanese consumer confidence inched up at 41.7 but quite below forecasts 41.9 as reported by the cabinet office, Japan.

The trade balance of Japan for May month posted another deficit, albeit small at ¥ 0.18tln and down from previous ¥ 0.24tln deficit in April. Both export growth (2.4%) and import growth (-8.7%) were declined than expected on YoY terms.

The economic recovery in the US and China remains weak, and Japan's exports are not yet showing strength.

Since the strategy with 2 legs combination is preferred, the execution should be with the accurate time frame and right Greek mathematical computations.

We recommend buy 7D (+0.1%) Out-Of-The-Money 0.47 delta call options from current levels.

Simultaneously, short build ups on (-0.05%) Out-Of-The-Money puts of the same pair and same expiry are also suggested.

With a slightly bullish view on this pair, we tried to extract leverage by shorting OTM put and then utilized the same for slightly above ATM calls which are likely turn out to be In-The-Money.