Trade Alert – (FXE) December 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 – (FXE)

Stop Loss

Sell the Currency Shares Euro Trust (FXE) January, 2013 $126-$131 in-the-money bear put spread at $0.95 or best

Closing Trade

12-18-2012

expiration date: January 18, 2013

Portfolio weighting: 5% = 17 contracts

With a resolution of the fiscal cliff imminent, I am going to take off my last “RISK OFF” position that I used to hedge all of my other remaining “RISK ON” positions in Apple, Google, the S&P 500, and the Russell 2000.

The Currency Shares Euro Trust (FXE) January, 2013 $126-$131 in-the-money bear put spread did its job well. It provided ample downside protection during the post election market melt down, generating a 3.5% profit at the lows I could use to offset other losses. Since then, the market has come roaring back, wiping out the (FXE) profit and generating a loss. The best that can be said for this position here is that I only committed 5% of my portfolio.

With QE3 plus QE4 = QE7, the dollar is the runner up in the race to the bottom, with the Japanese yen in first place. So far, European Central Bank president, Mario Draghi, has only talked about such measures. That opens the way for a stronger Euro, which now looks poised to challenge $1.35. Time to cut and run from bearish positions. By coming out here, I also duck the huge time decay over the holidays, now that we are out-of-the-money.

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 buy the legs individually or you will end up losing much of your profit up front. If you don’t get filled, then just wait for the next Trade Alert. There will be many fish in the sea.

The same applies if, for any reason, you don’t understand this trade. Better to watch this strategy unfold on paper in the model portfolio before you try it with real money.

Keep in mind that these are ball park prices only. Spread pricing can be very volatile on expiration months farther out.

These are the trades you should execute:

Sell 17 January, 2013 (FXE) $131 puts at…………………….…$1.00
Buy to cover short 17 January, 2013 (FXE) $126 puts a……….$0.05
Net Proceeds:………….…………………………………….……$0.95

Loss: $2.91 – $0.95 = $1.96

(17 X 100 X $1.96) = $3,332 or 3.33% profit for the notional $100,000 portfolio.