Trade Idea: 3 mth EURUSD Straddle

04mar22 1.1300 EUR Call USD Put (hedged)

Delta one trading in EURUSD was not fun the last couple of days as the pair sticks magnetically to the 1.1300 treshold. Anyway it is very likely that we will see a breakout of the recent range 1.1260 / 1.1360 until end of year. With the FED meeting ahead on wednesday the final trigger might be just around the corner.

In the Vol space things have not changed much yet. Compared to the last vol update 3 mth ATM implied vol came down from 6.41% to 6.37% and the 6 mth trades just 0.02 points lower at 6.43 %.

(source: cme group, own representation)

A 3 mth FX Option (delta hedged = Straddle) gives us already gamma to play around with the upcoming risk events this week (FED and ECB), possibly changing risk sentiment in general and less liquid markets until end of year. With more than 2 month left in the new year even somewhat later rising implied Vol can have a positive impact and I am very convinced that the 3 mth tenor is worth it.


Option details

ISIN DE000DV5D6B1 (DZ Bank - not sponsored!)

EUR Call USD Put
Expiry 04mar22
Strike 1.1300
Spot ref 1.1290
Prem 1.28 (EUR; 10.000 EUR Notional = 128 EUR prem)
Delta 0.52 (slightly itm as forward rate is around 1.1312)

If you like to buy and hold (both, the FX Option and your delta hedge) the graph above shows you the break evens at 1.1019 to the downside respective 1.1621 to the upside. Of course active delta hedging and rising implied Vol can deliver a decent profit anytime between the purchase and selling of the option.

I would be very happy to receive feedback because I really have no idea whether you are interested in this at all.

Good luck,
Sebbo