Trade Alert – Expiration (FXY) June 18, 2012

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.

Trade Alert - (FXY) – Expiration

Expiration of our Short position in the Currency Shares Japanese Yen Trust (FXY) June, 2012 $125-$129 call spread at zero value

Closing Trade


expiration date: June 15, 2012

Portfolio weighting: 10% = 30 contracts

This was a bet that the Currency Shares Japanese Yen Trust June, 2012 (FXY) trades at or below $125.42 on the June 15 expiration in three weeks. The pros in the pits tried to gun this ETF through our strike during the final minutes of trading on Friday but failed by w whisker.

As it turns out, it closed on that day at $124.91, a scant .09 points out of the money, rendering our short position worthless. Hey, a win is a win. The position should disappear off of your account statement today and the margin requirement freed up.

The market certainly made us sweat on this one. On the day of the Treasury bond melt up on June 1 that took ten year yields down to a gob smacking 1.42%, our short $125 call was a frightening two points in the money, threatening a serious hickey on our P&L.

My bet that this was a onetime only capitulation spike turned out to be correct, with the (FXY) selling off four points only a few days later. Let the volatility of this position be a lesson that you should never excessively leverage up on a position like this and that you should never bet more than you can afford to lose. They don’t call me “Mad” for nothing.

The Bank of Japan has so far incorrectly passed on every opportunity to expand quantitative easing. But they eventually will have no choice but to purse this policy. It is just a matter when. I believe that the yen will continue to churn around these levels, which is why I put back the same position on for the July expiration, except it is two points farther out of the money. I don’t think that anyone wants to chase the yen up from here. That pegs our breakeven for the July short $127-$131 call spread at ¥76.75 in the cash market.

Your total profit on the June position should amounts to (30 X 100 X $0.42) = $1,260. That gives you a profit on this less than three week play of 1.26% for the notional $100,000 model portfolio. This is the same as taking out a full ¥1.10 out of the cash market on a non-leveraged basis. Good job.