FxWirePro: Rising IV, negative delta risk reversal ahead of Fed’s meet keeps USD/JPY elevated – short put ladder for swing trading

We anticipate the Yen would continue to gain in future although upswings for the moment are rallying on this pair but any abrupt swings may turn adversely as we think today's upswing is not that robust and long lasting, so we've tailored our formulation of option strategy as the risk appetite varies from different investors to traders.

In addition to that, we can observe delta risk reversal for this pair is gradually turning into high negative values, this would mean that market sentiments for this pair have been negative for this pair. Moreover, the pair is likely to perceive implied volatility close to 13% of 1W ATM contracts ahead of fed's meet that is scheduled on 17^th of this month, thus we recommend deploying short put ladder spreads which is suitable for prevailing trend and significantly higher volatility times.

Currency Option Strategy: USD/JPY Short Put Ladder
Rationale: unlimited downside and limited upside profit potential

How to execute: Short 7D (1.5%) ITM put option and simultaneously add longs on 15D ATM -0.49 delta put option and one more 1M (-1%) OTM -0.19 delta put option. The delta of combined position would be at 0.12.

Maximum returns are limited to the extent of initial credit received if the USDJPY rallies above the upper breakeven point (BEP) but large unlimited profit can be achieved should the underlying exchange rate of USDJPY  makes a vivid downswings below the lower BEP.