Question
You work as portfolio manager and one of your crucial clients has just asked you to invest 10 000 000 in currency American options. He
You work as portfolio manager and one of your crucial clients has just asked you to invest 10 000 000 in currency American options. He asked you to choose one of the major rate from the following list:
EURUSD GBPUSD EURGBP USDJPY EURJPY GBPJPY USDCAD AUDUSD
Your customer expects increasing volatility on currency markets, thus wishes to open long strangle strategy (simultaneous positions in out-of-the money call and put options with the same nominal values and with delta of the whole portfolio close to 0) with 6 months to maturity. However, your customer wants to earn on increasing volatility and be immune to slight changes of underlying asset. Hence, you proposed to keep portfolio constantly delta neutral.
Question ; Choose one of the major exchange rates listed above and Determine strikes for both call and put options. You need to open strangle strategy, thus you have to buy out-of-the money options (both should have the same nominal value). Assume that options youre going to buy should have delta between 0,1-0,35 (in 3 absolute terms) youre free to select delta (which would determine strike). However, you need to remember that delta of the whole portfolio should be 0.
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