The sharp decline from $1.05 this year has provided some relief to the economy, and most bank strategists see more downside to come for 2014. In the short term, the best approach is to position for a pause and collect some premium while waiting for the next catalyst to move the currency lower. Option implied volatility here is at two-month highs after moving sharply higher in the last couple weeks.
This trade sells short-term puts to partially finance the purchase of longer-dated puts. It will profit if the volatility term structure of AUD volatility steepens, since the short January puts will lose value more quickly than the long March puts. If the trade works out nicely, we may be able to sell or roll to February options as well.
Trades: Buy to open 6AH4 (March) 0.91 puts for $0.0193 and sell to open 6AF4 (January) 0.90 puts at $0.0068.
Equity-only investors can put on a similar position using the CurrencyShares Australian Dollar Trust (FXA), multiplying the strike prices by 100.
OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits
Jared can be followed on Twitter at twitter.com/CondorOptions
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV