• FxWirePro: expect narrowed Polish deflation - ccs to tackle short term downswings, major uptrend and reduces hedging cost

    来源: FxWire Pro - Insights & Views / 31 五月 2016 14:24:41   Europe/London

    We estimate that deflation in May narrowed to -1.0% yoy from -1.1% in April, while on monthly terms consumer prices increased by 0.1%.

    We expect 0.2% mom growth in food prices and around 2.4% mom growth in transport prices (as fuel prices increased by 4.1% mom in May). The final figure will be released on 13 June.

    Execution: Keeping the above both fundamental and technical factors in mind, it is advisable to go long in 1M (1%) OTM 0.36 delta call while writing 1W (1%) ITM call with positive theta and delta closer to zero (both sides use European style options), this credit call spread option trading strategy is recommended when the spot price is anticipated to drop moderately in the near term and spikes up in long term.

    Trade expects that the underlying spot price would drop to ITM strikes on expiration and thereafter bounce back again.

    Thereby, you are speculating the USDPLN's struggle in short run by shorting, and hedge any dramatic upside risks in long term via longs in OTM strikes which is why we've used diagonal expiries.

    Margin: Yes for ITM shorts.

    Return: The return is limited by ITM shorts. No matter how far the market moves below that point, the profit would be the maximum to the extent of initial premiums received, reduces cost of longs.

    BEP: The break-even point lies between ITM and OTM strikes as shown  in the diagram.

    Risk:  If the underlying spot price rises above the strike price of the higher strike call at the expiration date, then the bear call spread strategy suffers a maximum loss equals to the difference in strike price between the two options minus the original credit taken in when entering the position..

    Effect of Volatility: No effect.