Since the pair has been trading in a narrow range from last couple of weeks, if it persists the momentum during the life of options then this strategy is quite suitable for long term perspectives.The strategy goes this way:Step 1: Short a Call and long the underlying currency.Step 2: Short a Put with sufficient cash to purchase the underlying currency if the obligation is exercised. Else, option goes worthless and pockets the premium.This is actually a combination of the covered call and cash secured put strategies.Scenario 1: If the underlying exchange rate rises above the call strike at expiration, the investor is most likely assigned on the call, which means selling their underlying at the call strike.Scenario 2: If the underlying currency falls below the put strike at expiration, the investor is more than likely assigned on the put and obligated to buy more stock at the put strike.Note: Preferably use At-The-Money instruments on both positions but should have similar duration of expiry.
The material has been provided by InstaForex Company – www.instaforex.com