FxWirePro: Variable ratio write for AUD/USD outright holders

Currency Option Insights: AUD/USD

Let's suppose US importer having FX payable exposure in AUD and he has those many Aussie dollars.

Further he is anticipating to Aussie dollar to depreciate in future then he's advised to write double the proportion of what he holds in spot FX.

For instance, if FX spot position is about AUD 100,000 then it is recommended to write 2 lots of call options.

i.e. write (1%) Out-Of-The-Money call and simultaneously write one more (-0.5%) In-The-Money call option of the same maturity while holding 50% of spot FX holdings.

Remember the combined position should have positive theta value as we have short sides alone.

It is limited profit and unlimited risk options strategy that is built if the options trader thinks that the underlying currency exchange rate will experience little volatility in the near term.

This strategy constitutes a lower profit potential but the profit zone is wider as we have chosen both ITM and OTM calls.