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 short the Currency Shares Euro Trust (FXE) May, 2012 $127 Puts at $0.18 or best on a 2:1 basis
expiration date: May 17, 2012
Portfolio weighting: 20% = 50 Contracts
I expect Socialist Francois Hollande to win the French presidential election on Sunday. That is what the (FXE) put options are reflecting today with their uncommon strength. The weak nonfarm payroll numbers released today have also give the “RISK OFF” trade a new breathe of life. So I think that after months of trading in an ever narrowing range, the Euro will finally break the $1.30 level.
However, it will not go into free fall. So I am happy to sell the (FXE) May $127 puts against my existing (FXE) June $130 puts on a 2:1 basis. If you want to be conservative and keep your short (FXE) put position fully hedged, then you can short the $127 puts on a 1:1 basis. The margin requirement will be much smaller. If these expire out of the money in two weeks as I expect, it will add 0.90%, or $900 to the value of your notional $100,000 portfolio. The $127 strike is close to the lows we saw in January, and we are not going to make it there in two weeks, no matter how dire events may turn in Europe.