Oil prices dictate the short-term moves in NOK , but the longer-term NOK outlook will depend on the lasting effects of lower oil prices to domestic drivers. NOK is down nearly 30% in import-weighted terms since early 2013 .
Ongoing NOK depreciation continues to underpin (possibly it is the only factor underpinning ) though slower growth and lower domestic demand may drag prices lower once the FX effect starts to wane. Nevertheless, the size of the hit to NOK looks exaggerated given Norway's strong fiscal position and capacity to support domestic growth.
Technically, EUR/NOK from yesterday seems like taking U turn to retest the year's high above 9.7400, signals buy as we see the convergence, while favours bulls as it displays the %K crossover at oversold region, intraday sentiments have been bias as it is holding stronger support at 9.4464 levels.
So to hedge NOK's uncertain trend, here goes the strategy: 2M (0.5%) in the money 0.66 delta calls and 1M (1%) out of the money calls with positive theta and prefer delta close zero.
This debit spread is preferred on a slight sceptic attitude, the ideal situation for such diagonal call spread buyer is when EURSEK price to remain unchanged or slowly creep up but certainly not beyond 1% within next 1 month and there onwards spikes up & beyond the strike price of the call sold.
In this scenario, as soon as the short call expires worthless, the options trader can write another slightly OTM call and repeat this process every month until expiration of the longer term call to reduce the cost of the trade. It may even be possible at some point in time to own the long term call "for free".