FxWirePro: NZD/JPY Option Sensitivity Tool in Sync With Technicals - Wise to Choose OTM Strikes in Speculating

FxWirePro: NZD/JPY Option Sensitivity Tool in Sync With Technicals - Wise to Choose OTM Strikes in Speculating

2 May 2016, 11:26
Roberto Jacobs
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FxWirePro: NZD/JPY Option Sensitivity Tool in Sync With Technicals - Wise to Choose OTM Strikes in Speculating

NZDJPY OTC observations:

From the sensitivity table, it is empathized that the rising vols of OTM strikes are increasing up with progressive numbers,

While, higher probability numbers of these OTM put strikes would imply that the NZD/JPY still carries more downside risks, and obviously risk reversal suggests more bearish sentiments in OTC markets, as a result puts would be on high demand, then it is advisable to gear up with OTM strikes in any hedging strategy that would be available cheaper premiums comparatively.

So, if a foreign trader is willing to assume some risk in return for the chance to exchange currency upon maturity at a better rate than the current forex forward rate.

Contemplating above OTC market’s indications, the implied volatility of ATM contracts of this pair is at around 18.40% for 10D expiries and 23.22% for 1D expiry which is the second highest among G20 currency space, so we eye on loading up with fresh longs for long term hedging, more number of longs comprising ATM instruments and ITM shorts in short term would optimise the strategy.

Technically, the pair rallied upto 74.699 after testing supports at 74.143 levels but more downside traction is foreseen in the months to come as the current prices on monthly charts are well below 7&21EMAs with leading oscillators to signal selling momentum.

But during later stage of last week prices have dropped below DMAs as well after testing stiff resistance at 76.951 levels, as a result we’ve seen the formation of bear candles with big real body.

Well, pondering over the above OTC market and technical indications we find this pair to evidence the upswings in very short run that should be utilized for long term hedging strategies after the BoJ chose on Thursday to hold its monetary policy, defying market expectations for additional monetary easing.

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