FxWirePro: Writing legs in call ladders to optimize EUR/CAD hedging for subdued bullish sentiments but with pinch of salt

Technically, EURCAD has been drifting in the range between 1.5258 - 1.4442 from the last couple of months. We foresee the trend is likely to hover in the similar range but certainly not any dramatic spikes.

Refer below weblink for more reading on technicals in our recent post:

https://www.econotimes.com/FxWirePro-EUR-CAD-short-term-trend-slides-through-falling-wedge-major-trend-spikes-between-rising-channel--Tunnel-spread-to-trade-and-short-hedge-998792

Well, after glancing through one must be convinced with short-term downtrend and long-term non-directional trend.

Large options set to constrict today’s range.

The EURCAD appreciation is now going to be slower than it has recently been as the CAD likely to gain traction on crude price support, while the skew is still undecided whether volatility should rise on the back of a higher or lower spot (refer above nutshell evidencing IV positive skews well balanced & stretched on both OTM calls and OTM puts).

As such, we do not focus on intermediary vega gains to favor instead a buy-and-hold structure benefiting from the passage of time, as the IVs are very tepid (below 7%) and the timing of euro upside is less certain. It is wise to know that an option writer wants IV to shrink away so as to fall premiums. Please also be noted short-dated options are less sensitive to IV, while long-dated is more sensitive.

Well, contemplating the recent fundamentals, technical and OTC developments, we’ve devised options strategy for EURCAD on hedging grounds.

Trade execution: at spot reference: 1.4768, buy EURCAD 2m ladder, strikes 1.5025/spot (i.e. 1.4768)/1.4406 (we wouldn’t like to be precise about the indicative offer, certainly assured but slightly lower than vanilla structure).

Rationale: We’ve already stated that there has been the stiff tug of war between EURCAD bulls and bear in the recent past.

Risks profile: See for the above structure exposes investors to maximum risks if the underlying EURCAD spot FX trades above upper BEP at the 2m expiry, a level not seen since last month.

Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards 26 levels (which is mildly bullish), while hourly CAD spot index was at shy above 13 (neutral) while articulating (at 12:26 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex.

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