As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.
Further Explanation to: Trade Alert – (FXE)
Sell the Currency Shares Euro Trust (FXE) September, 2013 $133-$135 put spread at $1.92 or best
Closing Trade-Not for New Investors
expiration date: 9-20-2013
Portfolio weighting: 10%
Number of Contracts = 60 contracts.
It looks like the (FXE) gave us the double top at $133 which I predicted in my August 28 webinar, which very conveniently, was the lower strike of my Currency Shares Euro Trust (FXE) September, 2013 $133-$135 bear put spread. We have since backed off $3, and lower levels beckon.
I originally wrote this Trade Alert on July 18 while on the express train from Berlin to Frankfurt. My friends in the German government had just painted a picture of the European economy which approximated Hieronymus Bosch’s vision of hell. My later discussions with European central bankers and CEO’s confirmed the worse.
Since then the Euro has appreciated against the dollar almost everyday, slowly draining profits from my model-trading portfolio. Lugging this position in the baggage of my summer vacation was no fun. That abruptly ended last week when traders returning from vacation, well rested and feeling their oats, decided collectively to take another run at the beleaguered European currency.
As of this morning, the market priced our spread at $1.92, just eight cents short of its maximum potential profit. That leaves 77% of the profit for us. So I am going to take the money and run. This reduces our risk for the month of September, when we are threatened by Syria and the regional contagion that will follow, the debt ceiling crisis, the taper, the identity of Ben Bernanke’s replacement, and a giant asteroid destroying the earth.
Since I sold short the Euro, almost every continental economic data point has been positive. Just this morning, we learned that the August Eurozone PMI Index rose from 50.5 to 51.5, a two year high. The UK August Business Activities Index leapt from 60.2 to 60.5, a six and a half year peak, no doubt in part due to the wad of money I dropped there a few weeks ago. The trend is your friend here, and like a giant supertanker slowly turning, the information flow is gradually turning from red to green.
If anything, I am now inclined to start examining European equity markets, which may bounce back stronger than those in the US. On the short list will be Germany (EWG), which is already in a solid uptrend and Italy (EWI) for a turnaround play. Greece (GREK) has already made its move, nearly tripling off the bottom.
On to the next trade.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous. Don’t execute the legs individually or you will end up losing much of your profit.
Keep in mind that these are ballpark prices only. Spread pricing can be very volatile on expiration months further out.
Here are the specific trades you need to execute this position:
Sell 60 September, 2013 (FXE) $135 puts at……………..…$4.65
Buy to cover Short 60 September, 2013 (FXE) $133 puts at..$2.73
Profit: $1.92 – $1.65 = $0.27
($0.27 X 100 X 60) = $1,620 – 1.62% for the notional $100,000 model portfolio.