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. This is your chance to ‘look over’ John Thomas’ shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen.
Trade Alert – (FXE)
Buy the Currency Shares Euro Trust (FXE) January, 2013 $126-$131 in-the-money bear put spread at $2.91 or best
expiration date: January 18, 2013
Portfolio weighting: 5% = 17 contracts
This is a bet that the Currency Shares Euro Trust (FXE) trades at or below $126 on the January 18 expiration.
It was just a matter of time before dreadful long term fundamentals suffocated a three month euro rally in the crib. It appears that the much better than expected jobs data has at last done the deed.
The logic of the market is quite simple. A stronger than expected US economy means that there is less need for quantitative easing from the Federal Reserve, which is great news for the dollar. If you had any doubts about this analysis, look no further than the price of gold, which is getting the stuffing knocked out of it today, down $30.
This is not just a one day wonder. I think we are on the cusp of getting a who raft of positive data points for the US economy (click here for My 2012-13 Stock Market Forecast at http://madhedgefundradio.com/my-2012-13-stock-market-forecast/ ). You will see in my Monday letter than I am doubling the number of black swans from four to eight.
There is also a fascinating development unfolding on the charts. Look below, and you’ll see that we are breaking down both through the 50 and 200 day moving averages at the same time. This is rare and presages a more sustainable move down. It is basically a technical analysts dream come true.
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:
Buy 17 January, 2013 (FXE) $131 puts at……………….…$4.20
Sell short 17 January, 2013 (FXE) $126 puts at..………….$1.29
Maximum potential profit at expiration: $5.00 – $2.91 = $2.09
(17 X 100 X $2.09) = $3,553 or 3.55% profit for the notional $100,000 portfolio.