FxWirePro: USD/CAD tests trendline support - Portfolio evaluation of covered call

USD/CAD is currently testing trendline supports at 1.2960 levels; this pair has been unable to sustain trendline resistance at 1.3212 levels, according to which in our last posts sometimes earlier this week "covered call" strategy was recommended.

Please refer: http://www.fxwirepro.com/biz/admin/contents/breaking/popup.htm?id=688030

So far the strategy is performing pretty good, if it holds the prevailing levels and then bounces back again towards trend line resistance but certainly not beyond 1.3107 levels for next fortnight or so, then we would be able to generate highest returns.

However, should the USDCAD price collapses to below $1.3107 instead, he still makes a profit since the $136.16 in premiums received more than offset, At that juncture, the call most likely will not get assigned since there is no intrinsic value left in the option.

Portfolio reconstruction in case of breach of trend line support:

Scenario 1: Contemplating a current technical situation, the pair on closing basis fails to hold the support 1.2960 at expiry then enjoy the premiums received and unload spot exposures according to the trend.

Scenario 2: Risk is only beyond 1.3107, so far our strategy holds well until expiry (i.e.9^th September).