Speculate USD/JPY within boundary binaries, hedge via spreads
After the steep slumps, if you are expecting reversal upswings then you are likely to get bull trapped if you are initiating longs for longer terms.
Since the formation of "shooting star" pattern candle at resistance around 114.157 levels and lesser moving average curve crossing over greater moving average on intraday chart indicates no dramatic escapes from the price band between 114.457 and 113.218.
As a result boundary binary options are recommended because we have mixed bag of technical indications (price curve evidences the higher highs but these fluctuations remain between these levels ). Stochs signal overbought pressures with RSI's downward convergence.
Well, binary options in range-bound markets like such scenarios can also be easy to use. Lets visualize with spot FX 113.845 a trader chooses an ATM binary put of USDJPY, the half an hour expiry, and two strike levels: the first strike level is lower than the current underlying value and the second strike level is higher than the current underlying value.
If the asset's settlement value is between these two strike levels at the expiration time, then the trade will close in-the-money on both binary positions.
But if the settlement value is below the lower strike or above the higher strike at expiration, then only one of the binary legs finishes in-the-money and the other leg is worthless, finishing out-of-the-money.
USDJPY appears prone to further downside risk without clear catalyst for an improvement in global market sentiment. Indeed, we have revised down sharply our USDJPY forecast and now look for USDJPY at 100 through Q1-Q3 and 95 by year-end.
According to our technical research, despite some momentary gains in this pair, the break of 115.918 last week confirmed the downtrend for USDJPY and the next immediate target is 110, followed by 105.
In addition to that, let's glance over the OTC market flashes. Well, USD/JPY delta risk reversals have increased to negative 1.1 and keep mounting bearish sentiments in a longer term. While this spike in negative hedging sentiments along with rising IVs that is highest among G7 currency segment.
Traders tend to view the put ratio backspread as a bear strategy, because it deploys more puts. However, it is actually a volatility strategy because the options with a higher IVs of USDJPY would cost more. This is intuitive due to the higher likelihood of the market 'swinging' in your favour. If IV increases and you are holding an option, this is good.
So entering the position when implied volatility is high and waiting for the inevitable adjustment is a smart approach, regardless of the direction of price movement. Based on volatility and time decay, the strategy is a "price neutral" approach to options, and one that makes a lot of sense.
The position is a spread with limited loss potential, but varying profit potential. The degree of profit relies on the strength and rapidity of price movement. The position uses long and short puts in a ratio, such as 2:1 or 3:2, to maximize returns. In most long/short spreads, you make money if the stock moves, but you lose if it remains in the middle "loss zone."
A ratio put backspread is different because it creates a net credit, so even if the USDJPY spot price does not move very much, you keep the credit if all of the puts expire worthless.
Since the formation of "shooting star" pattern candle at resistance around 114.157 levels and lesser moving average curve crossing over greater moving average on intraday chart indicates no dramatic escapes from the price band between 114.457 and 113.218.
As a result boundary binary options are recommended because we have mixed bag of technical indications (price curve evidences the higher highs but these fluctuations remain between these levels ). Stochs signal overbought pressures with RSI's downward convergence.
Well, binary options in range-bound markets like such scenarios can also be easy to use. Lets visualize with spot FX 113.845 a trader chooses an ATM binary put of USDJPY, the half an hour expiry, and two strike levels: the first strike level is lower than the current underlying value and the second strike level is higher than the current underlying value.
If the asset's settlement value is between these two strike levels at the expiration time, then the trade will close in-the-money on both binary positions.
But if the settlement value is below the lower strike or above the higher strike at expiration, then only one of the binary legs finishes in-the-money and the other leg is worthless, finishing out-of-the-money.
USDJPY appears prone to further downside risk without clear catalyst for an improvement in global market sentiment. Indeed, we have revised down sharply our USDJPY forecast and now look for USDJPY at 100 through Q1-Q3 and 95 by year-end.
According to our technical research, despite some momentary gains in this pair, the break of 115.918 last week confirmed the downtrend for USDJPY and the next immediate target is 110, followed by 105.
In addition to that, let's glance over the OTC market flashes. Well, USD/JPY delta risk reversals have increased to negative 1.1 and keep mounting bearish sentiments in a longer term. While this spike in negative hedging sentiments along with rising IVs that is highest among G7 currency segment.
Traders tend to view the put ratio backspread as a bear strategy, because it deploys more puts. However, it is actually a volatility strategy because the options with a higher IVs of USDJPY would cost more. This is intuitive due to the higher likelihood of the market 'swinging' in your favour. If IV increases and you are holding an option, this is good.
So entering the position when implied volatility is high and waiting for the inevitable adjustment is a smart approach, regardless of the direction of price movement. Based on volatility and time decay, the strategy is a "price neutral" approach to options, and one that makes a lot of sense.
The position is a spread with limited loss potential, but varying profit potential. The degree of profit relies on the strength and rapidity of price movement. The position uses long and short puts in a ratio, such as 2:1 or 3:2, to maximize returns. In most long/short spreads, you make money if the stock moves, but you lose if it remains in the middle "loss zone."
A ratio put backspread is different because it creates a net credit, so even if the USDJPY spot price does not move very much, you keep the credit if all of the puts expire worthless.