Trading NZDUSD via FX Option Strategies Trading NZDUSD via FX Option Strategies Trading NZDUSD via FX Option Strategies

Trading NZDUSD via FX Option Strategies

Options 10 minutes to read
Hay Thi

Market Specialist

Background

The Reserve Bank of New Zealand (RBNZ) has recently adopted a dovish stance due to weakening economic indicators. CPI data released on Tuesday confirmed that inflation has eased more than expected in Q2, with 0.4% quarterly increase and 3.3% yearly increase, below the central bank forecasts of 0.6% and 3.6% respectively. This may give RBNZ more confidence to cut rates sooner than what the market is expecting. Meanwhile, in the US, June retail sales data came in unchanged and boosted investor sentiment for rate cut in September. Political tensions are also rising as the US Presidential elections draw closer in November. Recent assassination attempt on Trump has improved his chances of winning the elections, which could lead to stronger demand for the safe haven USD. NZDUSD has strengthened despite softer headline CPI, and currently trading above 0.6075.

Our Head of FX Strategy thinks:

A dovish hold from the RBNZ at the July meeting, coupled with lower-than-expected Q2 inflation print has paved the way for earlier and more substantial rate cuts by the Reserve Bank of New Zealand. Evidence of demand weakness can be seen in the recent contractions in manufacturing PMI and consumer confidence, but the market still expects RBNZ to start cutting rates only in October. This leaves scope for some further dovish repricing in the RBNZ curve if further economic weakness was evident, and this could bring headwinds for NZD. However, markets are also very focused on a potential start of the Fed rate cut cycle in September which could keep the US dollar on the backfoot. As such, kiwi weakness may remain more pronounced on the crosses, especially against the Aussie dollar where rate hike chatter is still alive. 

Options inspiration to consider for NZDUSD bears

Buy Put/Sell Call for 1 month

  • Spot Reference: 0.6075
  • Notional value: 100,000
  • Expiry date: 1 month (15-Aug-2024)
  • Sell Call at strike price: 0.6155
  • Buy Put at strike price: 0.6015
  • Net cost ~ 0

Buy Put/Sell Put/Sell Call for 1 month

  • Spot Reference: 0.6075
  • Notional value: 100,000
  • Expiry date: 1 month (15-Aug-2024)
  • Buy Put at strike price: 0.6075
  • Sell Put at strike price: 0.5975
  • Sell Call at strike price: 0.6140
  • Net cost ~ 0

Scenario Analysis comparing pay-offs of Sell Spot vs Sell Call vs Collar vs Seagull for 1 month for a notional value of NZD 100k

Buy Put/Sell Call for 3 months

  • Spot Reference: 0.6075
  • Notional value: 100,000
  • Expiry date: 3 months (17-Oct-2024)
  • Sell Call at strike price: 0.6155
  • Buy Put at strike price: 0.6015
  • Net cost ~ 0

Buy Put/Sell Put/Sell Call for 3 months

  • Spot Reference: 0.6075
  • Notional value: 100,000
  • Expiry date: 3 months (17-Oct-2024)
  • Buy Put at strike price: 0.6075
  • Sell Put at strike price: 0.5900
  • Sell Call at strike price: 0.6175
  • Net cost ~ 0

Scenario Analysis comparing pay-offs of Sell Spot vs Sell Call vs Collar vs Seagull for 3 months for a notional value of NZD 100k

Options inspiration to consider for NZDUSD bulls

Buy Call/Sell Put for 1 month

  • Spot Reference: 0.6075
  • Notional value: 100,000
  • Expiry date: 3 months (17-Oct-2024)
  • Buy Call at strike price: 0.6170
  • Sell Put at strike price: 0.6010
  • Net cost ~ 0

Buy Call/Sell Call/Sell Put for 1 month

  • Spot Reference: 0.6075
  • Notional value: 100,000
  • Expiry date: 3 months (17-Oct-2024)
  • Buy Call at strike price: 0.6080
  • Sell Call at strike price: 0.6180
  • Sell Put at strike price: 0.6055
  • Net cost ~ 0

Scenario Analysis comparing pay-offs of Buy Spot vs Sell Put vs Collar vs Seagull for 1 month for a notional value of NZD 100k

Buy Call/Sell Put for 3 months

  • Spot Reference: 0.6075
  • Notional value: 100,000
  • Expiry date: 3 months (17-Oct-2024)
  • Buy Call at strike price: 0.6200
  • Sell Put at strike price: 0.5960
  • Net cost ~ 0

Buy Call/Sell Call/Sell Put for 3 months

  • Spot Reference: 0.6075
  • Notional value: 100,000
  • Expiry date: 3 months (17-Oct-2024)
  • Buy Call at strike price: 0.6080
  • Sell Call at strike price: 0.6230
  • Sell Put at strike price: 0.5990
  • Net cost ~ 0

Scenario Analysis comparing pay-offs of Buy Spot vs Sell Put vs Collar vs Seagull for 3 months for a notional value of NZD 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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