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Feb 01 - 07:55 AM

USD/JPY - COMMENT-Cheap Option Strategies To Protect USD/JPY's Topside

By Richard Pace  —  Feb 01 - 05:48 AM

Those worried about or wanting to benefit from more USD/JPY gains have an array of simple and cheap options to consider; they only risk an upfront premium.

Vanilla JPY call/USD put options give holders the right to buy USD/JPY at a predetermined level (strike) and expiry date.
With USD/JPY at 104.85 and one-week implied volatility at 5.5, a one-week expiry 105.00 strike JPY call/USD put premium is 27 JPY pips.
Add a knock-out barrier at 106.00 and it's just 10 pips.
However, if adding the barrier, the option is dead should 106.00 trade.

Digital options are a cheap bet on spot being above a certain level at expiry.
A one-week 106.00 JPY put digital pays 10:1 if spot is above 106.00 at expiry.
Lower that strike to 105.50 and it will return 3:1.

One-touch binary options pay out a fixed amount if spot touches a predetermined level any time before expiry - one-week 106.00 One touch currently costs 19% of total return - so a 4:1 payout.

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JPY=EBS Click here

Source:
Refinitiv IFR Research/Market Commentary

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