FxWirePro: Short side in USD/JPY put ladder assures yields, longs yet to function

We could foresee Yen against dollar to gain slightly at least in short run (let's say next 1 months or so) with an anticipation of Fed may continue to hold on its rate stance until Q1'16 considering global economic slowdown and mixed bag of US markets.

For us, this would mean that market sentiments for dollar have been weaker and this pair is bearish. As a result, we reckon that for next month Yen may pretty much gain out of lots of manipulations and ambiguities are surrounding around dollar.

In addition to these speculations, it is also understood that ATM contacts of USDJPY have gradually reduced implied volatilities after the much awaited fed's meet which did not evidence any change in its rate policy that could have propped up dollar's strength (see and compare current 1w & 1m contracts with the last week's contracts).

On the other hand, delta risk reversal for the pair is still highest negative values among entire G7 currency space for next 1-2 months, but we believe some short upswings may be utilized for shorts. (Compare delta risk reversal with last week).

The pair is likely to perceive implied volatility close to 6.9% of 1M ATM contracts that has increased from last week's 7.2%, thus we recommend holding longs on put ladder spreads that contained proportionately less number of shorts and more longs which would take care of potential slumps on this pair and significantly higher volatility times.

So, shorting ITM put with shorter expiry would have fetched certain yields as receipt of initial premiums (see daily price actions and you had shorts on ITM puts) and hold 2 lots of ATM and OTM put with longer expiry since implied volatility is inching lower which is good for option holders.