AUDUSD has been trading in a 0.7500/0.8000 range since the beginning of the year. Spot is currently sitting in the middle of the range around 0.7750.
Implied vols have gradually been trading lower since the sharp move lower in spot at end of February where we saw a big spike in vol. Realized vol has dropped quickly over the last month which makes AUDUSD vol the second most expensive after USDNOK, see top left chart below. The risk premium of 1.25 vol is the highest since late February and trades at the 88-percentile looking at 1-year historical data.
We prefer to stay short vol considering spot in the middle of the range and the high risk premium. There are no big events before the FED meeting in two weeks, which we don’t expect to have a major market impact.
Sell 1 month 0.7900 AUDUSD call
Sell 1 month 0.7600 AUDUSD put
Receive 56 pips
Buy 1 month 0.7600 AUDUSD call in 1 mio
Sell 1 month 0.7750 AUDUSD call in 2 mio
Buy 1 month 0.7900 AUDUSD call in 1 mio
Cost 54 pips
Spot ref.: 0.7750
A 1 by 2 call spread without the protective 0.7900 call would cost 24 pips.
Or you will get a close to zero cost strategy if you combine the two strategies, note the 0.7900 call is not needed in a combined strategy as they cancel out each other. The combined strategy would earn money if spot stay between 0.7600 and 0.7900, with a max profit of 150 pips at 0.7750, but with risk if spot would move outside 0.7600 or 0.7900.