FxWirePro: Vega suggests long USD/CAD iron butterfly for complacent bulls

We can still extract returns from this pair even though exhausted bulls who think long lasting non-stop streak of bull run to take halt at this point. Yes, that's quite achievable from iron butterfly strategy.

To execute this strategy, the hedger goes long on a lower strike Out-Of-The-Money put and shorts At-The-Money Put simultaneously short again on At-The-Money call and long on Out-Of-The-Money call, this results in a net credit to put on the trade.

Iron Butterfly (USD/CAD) = Long OTM -0.16 delta Put (strike at 1.2863) & Short ATM Put (1.2505) + Short ATM Call (1.2505) & Long OTM 0.19 delta call (strike at 1.3124)

Vega on Long OTM call = 49.98
Vega on Long OTM put = 45.55

Usually if the Vega of a long option position is positive and the implied volatility rises or dips, the above stated option prices are directly proportional to the implied volatility.

So in this case Vega both on long position is reasonably acceptable. It is desirable that at maturity the underlying exchange rate of USD/CAD to remain near short strikes in order to achieve highest returns.