Now it's time of our profit zone.


I - The situation :

EUR / USD decreases to 1.3160 because of the woes on European States habilities to remain united on european monetary policies




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 :

For a spot at 1.3184




300000 1.34 puts are worth 0.0230 each ( Implied Volatility de 12.61% ) hence $ 8100 ( $ + 1200 )
600000 1.32 puts are worth 0.0158 each ( Implied Volatility 14.05% ) thus $ 9480 ( $ + 660 )
300000 1.30 puts are worth 0.0071 each ( Implied Volatility 13.68% ) hence $ 2130 ( $ - 2010 )

Global P&L : + 1200 +660 - 2010 = $ - 150



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 0.0270 thus $ 8100 (- 1260 )
- 200000 1.36 puts at 0.0432 thus $ 8640 ( + 2300)

A profit of $ + 1040.






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Gilles