Tomorrow there is the release of the U.S. GDP, expected at 1.0% and the interest rate decision, expected to be unchanged at 0-0.25%. Thursday there is the release of the Euro zone Consumer Price Index (CPI) expected at 0.0%.
EUR/USD has seen some swings this month, ranging between its highs on April 6 at 1.1028 and lows on April 13 at 1.0527 as seen in the graph below.
If you believe these next few days will continue to be volatile, a popular voatility strategy is a long strangle. The strangle is very similar to the straddle with one difference, the strikes of the options. In a straddle, you purchase both a Call and a Put with the same strike and in a strangle, similarily you purchase a Call and a Put bu t they have different strikes andthe strikes are OTM (out-of-the-money. This means the Call will have a strake that is higher than the spot market and the Put will have a strike that is lower. This results in lower cost to buy the stratgy compared with a straddle.
You can trade this position on MT4 using ORE option symbols or on the ORE web solution, OPTIONSREASY.
The position with the MT4 symbols:
BUY symbol C#EURUSDw+2, with strike = 1.0915
BUY symbol P#EURUSDw+0, with strike = 1.0815
By purchasing both these options, you are creating a strangle that will expire Friday, May 1st.
The graph below shows the strategies profit or loss at expiry over a range of EUR/USD rates. The total cost of this position of an amount of 1 lot (100,000 EUR), at the time of writing = $731.
If the market trades back to its month highs, the position will profit $400, more than 50% of its value at open. You will also receive a profit if the market trades down below 1.0741. If the market does not move out of the range 1.0741 - 1.0988, you will make a loss with maximum risk $731.
The content provided is made available to you by ORE Tech Ltd for educational purposes only, and does not constitute any recommendation and/or proposal regarding the performance and/or avoidance of any transaction (whether financial or not), and does not provide or intend to provide any basis of assumption and/or reliance to any such transaction.
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