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 – (FXY)
Sell the Currency Shares Japanese Yen Trust (FXY) January, 2013 $119-$124 put spread at $4.40 or best
Closing Trade-for existing holders only
12-14-2012 – 1:00 PM EST
expiration date: January 18, 2013
Portfolio weighting: 5% = 21 contracts
This was a bet that the Currency Shares Japanese Yen Trust (FXY) trades at or below $119 on the January 18 expiration. As of now, it is trading at a lowly $117.50.
At $4.40 we have earned a 87% return on investment in little more than a month. We have reaped 70% of the maximum potential profit in this position. Rather than tie up my capital for another month just to earn the remaining 42 basis points, I am going to take the money and run.
The Japanese national elections are this weekend, and the pro monetary expansion Liberal Democratic Party is expected to win 230 seats out of a 430 total. That is a landslide.
By taking profits here, we avoid the “Buy the rumor, sell the news” risk that has been so prevalent in financial markets this year. Another incentive to bail is that hedge fund shorts in the yen are at all time highs. Year-end profit taking on these shorts is a further risk. We also get to duck the “fiscal cliff” risk here in the US. Any failure to come to a deal would send the yen soaring against the dollar.
With a net gain for the portfolio of 4.31%, this has been the most profitable trade of 2012. I wish they were all this easy. That decade I spent living in Tokyo rabbit hutches, learning to read and write Japanese, and maintaining my government contacts there ever since, is finally paying off.
For those who own the double short yen ETF (YCS), you might also consider taking profit for the same reasons. We are now at the top of an 18 month trading range.
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 21 January, 2013 (FXY) $124 puts at…………….……….…$6.55
Buy to cover short 21 January, 2013 (FXY) $119 puts at……….$2.15
Profit: $4.40 – $2.35 = $2.05
(21 X 100 X $2.05) = $4,305 or 4.31% profit for the notional $100,000 portfolio.
Look Out Below!