It bounced back from 1.35 to 1.3410, that range becomes a serious one.


I - The situation :

EUR / USD remains in its range




II - The strategy :

I had choosen in a arbitrary way a bearish direction on the EUR / USD, that the dollar should strengthen against the EUR.
The butterfly spread is built as it follows:

DEC 28 Expiry:
- The purchase of 300000 calls struck at 1.34 for $0.0230 each ( Implied Volatility 16.59% ) hence a debit of $ 6900
- The short selling of 600000 calls struck at 1.32 for 0.0169 each ( Implied Volatility 16.72% ) hence a credit of $ 10140
- The purchase of 300000 calls struck at 1.30 for $ 0.0138 ( Implied Volatility 17.86% ) hence a debit of $ 4140

Global debit : $ 900



III - Pricing :




300000 1.34 puts are worth 0.0164 each ( Implied Volatility de 13.37% ) hence $ 4920 ( $ -1000 )
600000 1.32 puts are worth 0.0100 each ( Implied Volatility 14.58% ) thus $ 6000 ( $ + 4140 )
300000 1.30 puts are worth 0.0049 each ( Implied Volatility 14.56% ) hence $ 1470 ( $ - 2670 )

Global P&L : - 1000 + 4140 - 2670 = $ - -510



IV - Graph :




Adjustment Pricing :
Our adjustment was :

Selling 300000 dec 1.34 calls for $ 7980
Buying 200000 dec 1.36 calls at 0.0317 for $ 6340.

It's now worth :
- 300000 1.34 puts at 0.0164 thus $ 4920 (+ 1920)
- 200000 1.36 puts at 0.0385 thus $ 5340 ( - 1000)

A profit of $ + 920.






Next : Forex Options Strategy - EUR / USD - OTM Butterfly Spread DEC11 ( 7th Update)
Previous : Forex Options Strategy - EUR / USD - OTM Butterfly Spread DEC11 ( 5th Update)

Gilles