As a floor trader and market-maker in share options I used to cover 5 stocks actively, and kept an eye on another dozen or so. I was always on the look-out for a free bet – a trade that cost nothing or close to nothing, that had significant upside. In principal, I still look for “free” risk. One way of finding lower cost positions, and potential free bets, is taking a trade ahead of an event – against consensus.

NZD/JPY is a case in point. The Reserve Bank of New Zealand meets on June 9. According to Bloomberg, the board will cut rates to 2.00%, from the current $2.25. This emerging consensus is one of the drivers of recent NZD weakness.

The Bank of Japan meets on June 16. It’s widely expected to stand pat, keeping its negative rate and maintaining the current monetary target. This is a contributor to JPY strength.

The falls in NZD/JPY, and the fact it is trading at more than 3 year lows, reflect this consensus. In other words, a cut from the RBNZ and no change from the BoJ are already in the price. This means going long at current levels gives exposure to any potential surprise moves, but should not be badly hurt if both central banks do as forecast.

In fact, any risk reduction ahead of the events could see the pair rise ahead of time. I’m a buyer at current levels, with a stop loss below the support. I’m looking for a move towards the top of the range. Buy at 74.12, stop loss at 72.80, take profit at 77.25. On the possible upside, 313 points, 132 on the downside. Works for me.