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Short

Short EUR/JPY on rallies via binary puts, BPS and backspreads

FX:EURJPY   Euro / Japanese Yen
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EUR/JPY             is nearing a decisive resistance levels at 133.096 where it has rejected and bounced several times, the pair has shown the supply and demand sentiments quite a lot of times in the recent times as well.

Moreover, it is now boiling up with bearish candle, we traced out a bearish shooting star at 132.709 levels on intraday chart.

So, traders must wait and see the next price movement. In an uptrend, if a bullish candle forms after the shooting star pattern at a resistance level , it could be used as an exit point.

Stochastic approached overbought zone and there is an attempt of %D line crossover that signifies selling pressures.

Considering previous downtrend that is now likely to extend we formulated suitable option strategies as below:

The best suitable idea is to use the rallies to stay short in this pair via binary puts as they are meant for high leveraging products. When our research convictions are strong enough towards downside why maximizing profits exponentially than being stuck in spot FX.

So, buy binary delta puts on every rally for targets at 132.554 with strict stop loss at 133 levels, thereby risk reward ratio at 1:3.

Hedging call:

At the money calls seems costlier which divulges the market sentiments for USD/JPY             pair (NPV of 1w ATM 50% delta call is 43703.88 while premiums trading above 23.93% at JPY 54162.77 for lot size 100,000 units).

From the nutshell showing delta risk reversal computation of ATM contracts and Net Present values of ATM instruments, it is understood that the ATM calls have been relatively on higher demand (this is just the resultant sentiments from recent rallies in this pair).

As a result we come up with suitable hedging framework for slight upside risks. Place backspreads using at the money calls in the 2:1 ratio. Current USDJPY             FX spot is ticking at 123.323.

Please refer below link for table showing delta risk reversal and NPV computation:

http://www.econotimes.com/FxWirePro-Short-EUR-JPY-via-debit-spreads-and-backspreads-for-aggressive-bears-113315
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