Time to time, when I feel there is a little more volatility
in the market; I enter into some quite simple option trades. The trades are not
too fancy, and are usually plain vanilla options or strangles.
I entered into one such trade today, which is on a long-term
scale. I decided to sell a EUR/JPY strangle option for 6 months at the levels
of 117 and 106.
Here’s my reasoning:
If you look at the EUR/JPY weekly chart, you’ll notice that
the cross has been ranging for the past 6 months, between 115.46 and 105.31. Therefore,
I see the 117 and 106 range as a fairly safe range to play for the next 6
months.
But since it is a long-term view, I will have to keep a
close watch on this option, and possibly play the range through spot as well.
I priced in the option, and received a premium of 3.4%. My
breakeven levels would therefore be approximately at 121 on the top and 102.40
on the low, which I feel are safe levels to play for the risk I’m taking.
Trade
Sell Eur call/ USD put at 117. Sell Eur put/ USD call at
106. Premium 3.4% of Euro face.
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