FXTM information and reviews
FXTM
93%
IronFX information and reviews
IronFX
92%
Libertex information and reviews
Libertex
91%
FXCC information and reviews
FXCC
90%
FxPro information and reviews
FxPro
88%
OctaFX information and reviews
OctaFX
86%

Load up weights in NZD/USD option


26 May 2016

Markets have been focused on the NZ trade balance and budget. NZ April 2016 Merchandise Trade prints positive numbers that drives NZD's strength for the moment. Balance: $292m (Market f/c: $117m)

Exports : $4,300m (Market: $4,420m) 
Imports: $4,008m (Market: $4,090m)

Annual balance: -$3,658m (previous: -$3,766m)

Elsewhere, a weak headline jobs number with solid wage growth in US could signal capacity constraints, US unemployment rate is also focus for the day.

With markets pricing very little chance (10%) of a June rate hike, and just north of 50% chance of 1 hike this year there is room for upside and downside surprises.

We are sceptical on NZ budget. From 2018 the economy may be weaker than the Treasury is forecasting due to the wind-down of the Canterbury rebuild and a cooling of the current borrow-and-spend dynamic.

Furthermore, this Budget made no allowance for tax cuts. In reality, tax cuts are a possibility.

Furthermore, RBNZ doesn’t really seem to have eased their economy by reducing 25 bps OCR in last month end or it may take time to factor in this monetary policy decision as GDP (q/q), GDT price index, manufacturing PMIs have reduced considerably and unemployment rates have increased on the other side. Market pricing assigns a 50% chance of the RBNZ cutting on 9 June.

OTC outlook & Hedging Frameworks:

1W ATM IVs are at 10.11% and 12.81% for 1m tenors.

Have a look at the sensitivity table for the different rate scenarios and their probabilistic outcomes, OTM put strikes with higher probabilities and higher gamma would mean that during higher volatility times, these strikes are most likely to finish in the money on expiration.

We've just referred 0.50% OTM put strikes and their vols, it still shows 0.3929 as delta values for underlying outrights with 63% of probabilities, that means 63% chances of finishing in-the-money which is why for demonstration purpose, as shown in the figure we consider the NZDUSD ATM instruments while formulating option strips strategy at spot FX ref: 0.6837.

Hence, Weights are to be more to favour downside risks (3:1), as a result, we recommend holding 2W at-the-money 0.51 delta call and simultaneously hold 1 lot of 1M at-the-money -0.49 delta put options and 2lot of 2M (1%) Out-Of-The-Money -0.36 delta put option.

Share:


Related

Scope for dips towards the 0.6793-0.6776 confluence zone
Scope for dips towards the 0.6793-0.6776 confluence zone

A dovish Reserve Bank of New Zealand (RBNZ) policy outcome this week, accompanied by a bloated NZD long positioning sees the kiwi breaking under a protracted...

25 Nov 2021

NZD/USD struggles for direction, flat-lined above mid-0.7100s
NZD/USD struggles for direction, flat-lined above mid-0.7100s

The NZD/USD pair seesawed between tepid gains/minor losses through the early part of the European session and was last seen trading in the neutral territory...

9 Nov 2021

Move beyond 50% Fibo. sets the stage for further gains
Move beyond 50% Fibo. sets the stage for further gains

NZD/USD gained strong traction for the fifth consecutive session on Tuesday. Sustained break through the 0.7100 confluence hurdle favours bullish traders...

19 Oct 2021

NZD: Buy the Rumor sell the fact?
NZD: Buy the Rumor sell the fact?

The RBNZ confirmed a 25-basis-point rate raise, which had been widely anticipated and already factored into the markets. The NZD, however, did not benefit from the boost...

14 Oct 2021

NZD/USD pares intraday gains, up little around 0.6915-20 area
NZD/USD pares intraday gains, up little around 0.6915-20 area

The risk-on impulse provided a modest boost to the perceived riskier kiwi on Thursday. Hawkish Fed expectations acted as a tailwind for the USD and capped gains for the pair...

7 Oct 2021

The Kiwi is falling
The Kiwi is falling

NZDUSD is being sold after the RBNZ meeting. The New Zealand Dollar is falling against the USD. The current quote for the instrument is 0.6880. During its October meeting...

6 Oct 2021


HotForex information and reviews
HotForex
85%
XM information and reviews
XM
80%
FXCM information and reviews
FXCM
79%
AvaTrade information and reviews
AvaTrade
76%
LegacyFX information and reviews
LegacyFX
75%
FP Markets information and reviews
FP Markets
72%

© 2006-2021 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.