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)
Sell the Currency Shares Euro Trust (FXE) June, 2012 $130 Puts at $3.80 or best
expiration date: June 15, 2012
Portfolio weighting: 10% = 45 Contracts
I expect a fairly energetic bounce off the 200 day moving average in the S&P 500, triggering a wave of profit taking for all “RISK OFF” positions.
In addition, on Friday, we learned that Euro shorts in the futures market hit a new historic all-time high. That news alone will cause trader to take quick profits and head for the hills.
Asymmetric risks are now to the upside. That means that the next marginal piece of bad news can only push the Euro down a little, but the next piece of good news will drive it up a lot. We have just seen a 6.5 cent plunge in the Euro over a very compressed time frame, which is huge in the foreign currency markets. When everybody has the same position, it’s time to get out.
Accelerated time decay is also kicking in for the June options, and I want to retrieve what premium I still can. So I am going to step out here and move to the sidelines, looking for better entry points down the road.
As much as I like their coffee, I have not fallen in love with the Euro, and believe that we may plunge down to $1.17 this year, and parity over the long haul.
The profit on this trade amounts to ($3.80 – $3.53 = $0.27). This added (100 X 45 X $0.27) = $1,215, or 1.22% to the value of your notional $100,000 model portfolio. Adding in the extra income from the put and call selling I did against this position, the total profit was $3.115, or 3.12%.