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May 21 - 07:55 AM

EUR/USD - COMMENT-EUR/USD Bulls Like These Low Cost Option Strategies

By Richard Pace  —  May 21 - 05:47 AM

Investors have increased demand for EUR call/USD put options over the last 2-weeks, with a focus on spreads that can significantly cheapen or even eliminate the cost of benefiting from further EUR/USD gains.

For example - 1-month expiry 1.2300 EUR calls cost $59-pips and give holders the right to buy EUR/USD at 1.2300 at expiry (break-even 1.2359).
But selling a 1-month 1.2450 for 25 pips reduces that premium to 34 pips - profit above 1.2334, to a maximum of $166-pips if spot is 1.2450 at expiry.
Selling more of the 1.2450 would further reduce the initial net premium.

There have been an array of strikes and expiries for these options, but all would benefit from a slow EUR/USD grind higher nL2N2N80C4.

There has also been demand for digital EUR call options that pay a fixed amount if EUR/USD is above a certain level at expiry - like 3-month 1.2500 EUR call digital for an up-front premium of 25% of the total payout.

Volatility traders might find value in 1-month expiries over June ECB and Fed nL2N2N80HW.

For more click on FXBUZ

EUR call digital option price Click here

Refinitiv IFR Research/Market Commentary


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