USDJPY - Applying options to better trade spot FX

With the LDP party election in Japan (Suga for the win), and the FOMC later in the week, USDJPY has been consolidating in a triangle formation, with the RSI mid-range. If we look at USDJPY 1-week implied volatility it closed Friday at 5.7%, which hardly screams of the market expecting fireworks in the week ahead and the implied move here is around 76-pips (higher of lower). We can project that on to the weekly chart (straddle shaded area) to get a sense of where the market expects price moves to be contained this week, with a 68.2% degree of confidence. This marries nicely with the Bollinger band (seen on the daily), which of course give a 95% degree of certainty that prices will be contained.

Should the FOMC prove to be a volatility event then the market feels the move should possibly push to 107.29 or 104.75, but they ascribe a 10% chance of either ‘wing’ being hit. Again, for those looking to understand movement to help with risk management and position sizing, this can be useful. I like to use for mean reversion, and would add pivot points for confluence intra-day.