Trading USDJPY via FX Option Strategies Trading USDJPY via FX Option Strategies Trading USDJPY via FX Option Strategies

Trading USDJPY via FX Option Strategies

Options 10 minutes to read
Hay Thi

Market Specialist

Background

The Japanese yen has been rallying due to the unwinding carry trades on the yen after the Bank of Japan (BoJ) raised the benchmark interest rate to tackle yen weakness and rising inflation. At the same time, the U.S dollar has weakened following disappointing economic data and recession fears. The dollar has extended its decline, with the dollar index hitting year-to-date lows as markets anticipate Fed Chair Powell to address the rate cut in September at the Jackson Hole symposium this week. BOJ Governor Ueda is also expected to discuss BOJ’s rate hike decisions on 23rd August. The BoJ’s timely rate hikes strategically position the yen to potentially benefit from the Fed’s dovish approach, as the dynamic shift in monetary policies will narrow the interest differentials between the two currencies. The USDJPY pair has declined sharply and is currently trading below 146.

Our Head of FX Strategy thinks:

The Japanese yen remains more a function of what happens with the US data, although BOJ's stance can create some near-term volatility. The unwinding of carry trades seen in early August has already turned speculator positioning in the yen to a net long, and a fresh trigger - potentially from escalating US recession concerns - may be needed for USDJPY to break below 140. 

Options inspiration to consider for USDJPY bears

Buy Put/Sell Put/Sell Call for 1 month

  • Spot Reference: 145.60
  • Notional value: 100,000
  • Expiry date: 1 month (24-Sep-2024)
  • Buy Put at strike price: 145.20
  • Sell Put at strike price: 142.30
  • Sell Call at strike price: 147.05
  • Net cost ~ 0

Scenario Analysis comparing pay-offs (in JPY) of Sell Spot vs Sell Call vs Seagull for 1 month for a notional value of USD 100k

Buy Put/Sell Put/Sell Call for 3 months

  • Spot Reference: 145.60
  • Notional value: 100,000
  • Expiry date: 3 months (22-Nov-2024)
  • Buy Put at strike price: 145.50
  • Sell Put at strike price: 142.55
  • Sell Call at strike price: 147.65
  • Net cost ~ 0

Scenario Analysis comparing pay-offs (in JPY) of Sell Spot vs Sell Call vs Seagull for 3 months for a notional value of USD 100k

Options inspiration to consider for USDJPY bulls

Buy Call/Sell Put for 1 month

  • Spot Reference: 145.60
  • Notional value: 100,000
  • Expiry date: 1 month (24-Sep-2024)
  • Buy Call at strike price: 146.50
  • Sell Put at strike price: 142.50
  • Net cost ~ 0

Buy Call/Sell Call/Sell Put for 1 month

  • Spot Reference: 145.60
  • Notional value: 100,000
  • Expiry date: 1 month (24-Sep-2024)
  • Buy Call at strike price: 145.60
  • Sell Call at strike price: 150
  • Sell Put at strike price: 142.50
  • Net cost ~ 0

Scenario Analysis comparing pay-offs (in JPY) of Buy Spot vs Sell Put vs Collar vs Seagull for 1 month for a notional value of USD 100k

Buy Call/Sell Put for 3 months

  • Spot Reference: 145.60
  • Notional value: 100,000
  • Expiry date: 3 months (22-Nov-2024)
  • Buy Call at strike price: 146.25
  • Sell Put at strike price: 140.00
  • Net cost ~ 0

Buy Call/Sell Call/Sell Put for 3 months

  • Spot Reference: 145.60
  • Notional value: 100,000
  • Expiry date: 3 months (22-Nov-2024)
  • Buy Call at strike price: 145.60
  • Sell Call at strike price: 154.65
  • Sell Put at strike price: 140.10
  • Net cost ~ 0

Scenario Analysis comparing pay-offs (in JPY) of Buy Spot vs Sell Put vs Collar vs Seagull for 3 months for a notional value of USD 100K


Important disclaimer: The impact of swaps is not taken into consideration in the scenario above. The strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and consider their unique financial situation, risk tolerance, and investment objectives before making any decisions. 

Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. Please refer to Saxo Capital Markets Risk Warning, where you will find more information on leveraged products and the associated risks. Trading in financial instruments carries risk and may not be suitable for you. Please also refer to Saxo Capital Markets’ full Disclaimer here.

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