FX Options Insights 22/08/24
Even if it is likely that the EUR/USD will continue to rise, it would be wise to protect yourself in case there is a short-term decline. To hedge against a decline in the EUR/USD, FX traders might utilize a straightforward strategy.
Following strong statistics on economic activity in the euro zone and ahead of wage data that may influence the European Central Bank's interest rate policy, the euro held firm versus the dollar on Thursday, approaching its highest level in over a year.
But there are indications that the recent EUR/USD surge is overdone and may witness another reversal, similar to the ones that occurred when the pair peaked in December at 1.1139 and July at 1.1273 of last year. A significant decline below 1.1000 in the upcoming sessions is possible.
Those looking to hedge against a short-term decline in the EUR/USD could purchase a one-week put option at 1.1140 EUR for 38 pip cost, spot pricing at 1.1143. If spot is below the 1.1102 breakeven barrier at the August 29 expiry, then profit potential is unlimited. The maximum loss is the 38-pip premium that was paid.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!