What October 25th's Options Portfolio Tells Us About the Yen

Oct 26

Our analysis of options portfolios from October 25th revealed a Straddle setup on the Japanese yen futures, with a short expiration date set for November 1, 2024. Now, this isn’t exactly a rare sight for the yen; these Straddle portfolios pop up pretty regularly, especially when we’re looking at short expiration periods.

From what we've seen, in about 4 out of 5 cases, the quotes tend to hang around the Straddle boundaries and often bounce off them. A recent example? August 5th—prices hit the upper limit at 149.20 (that’s the spot quote) and then bounced back nicely, giving savvy traders a sweet opportunity to jump into a short position on the dollar with a solid risk/reward ratio.


So, what's the takeaway here? Use those Straddle boundaries to open positions in the spot/forex market. It makes sense to trade in the direction of the main trend, which means looking for a drop in the yen against the dollar when prices hit that upper boundary—check out #1 for a visual.

Now, I can hear the skeptics asking: what's the rationale behind these price movements at the Straddle boundaries? After all, a Straddle is just a straightforward strategy that involves buying volatility and betting on price movement. True, that’s the textbook definition, but it’s just scratching the surface. The real insights and "battle-tested applications" of this strategy are way more intricate than they seem.

Stay tuned for our updates, and you’ll definitely uncover the hidden meanings and value of options analysis for the everyday forex trader. Trust me, these insights can give you a real edge in the market. It’s worth your time and effort!

Oct 31

Note

Meantime, Yen Futures are trading within the Straddle range, just like I mentioned earlier. These kinds of trades are a lot like "trading with a counterparty." What does that mean? Well, there are always two sides to the trade: one party sells the options contract, and the other buys it, or vice versa. One trader, based on their analysis, concludes that volatility is bound to drop and prices will settle into a range, while the other is happy to sell him that portfolio and make a profit off it.

The key here - is the Size of the portfolio—it was quite significant, and you can't just scoop that up from the market quickly; you need a specific Seller. Plus, both parties can profit from this deal. The option Seller collects the premium from the theta decay of the portfolio, while the Buyer will hedge with futures at the Straddle boundaries, creating a risk-free synthetic position either long or short, depending on which boundary they’re working with.

That’s how it goes... It’s a shame that us regular traders don’t have access to these kinds of tricks... Although...