FxWirePro: Trade Long Guts of AUD/NZD, hopes on AUD recovery due to RBA’s policy

Since RBA's kept cash rate unchanged, if not any dramatic fluctuations in Aussie dollar's, stable recovery can be taken into control by deploying the below strategy.

Option basket: Long Guts (AUD/NZD)

In the figure, there is no significant change in theta value even though the underlying exchange rate oscillates dramatically. (From spot 1.1194, even if it moves to any extreme directions 1.1044 or 1.1344 then there is no significant change in Theta accordingly)

Here, Theta was in the range of -52.53 to -57.53 when the options value at execution NZD 1437.38 on Call & NZD 1392.27 on put.

Theta has not been that sensitive to option's value to the passage of time.

For ITM call option, as time to expiry draws nearer, Theta lowers and decreases. In this case of AUD/NZD long guts, the relative change is not significant.

The long guts is a neutral strategy in options trading that involve the simultaneous buying of an ITM call option and an ITM put option of the same underlying currency and expiration date.

This is an unlimited profit, limited risk strategy that is taken when the options trader thinks that the underlying exchange rate will experience significant volatility in the near term.

These long guts are a debit spread as a net debit is taken to enter the trade.

Large gains for the long guts strategy is attained when the underlying currency price makes a very strong move either upwards or downwards at expiration.

The move in the underlying currency price must be strong enough such that either the long call or the long put rise enough in value to offset the loss incurred by the other option expiring worthless.