Trade Alert – (FXY) January 28, 2013

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)

Buy the Currency Shares Japanese Yen Trust (FXY) March, 2013 $110-$115 in-the-money bear put spread at $4.20 or best

Opening Trade-this represents a doubling up of our risk on top of our existing February (FXY) $110-$115 put spread

expiration date: March 15, 2013

Portfolio weighting for this spread: increase from 10% to 20% = an additional 22 contracts

Here, we get paid to chase. That’s what happens when Japan’s Minister of International Trade and Industry says there would be “no problem” with the yen falling all the way down to ¥100 to the dollar. I know well the weight of his words, as my late father-in-law was a vice minister at this key government agency.

He has basically given we foreign exchange traders a free pass for a further 7% fall in the yen. On those rare occasions when senior officials name a specific number like this, the market tends to test it pretty quickly.

This is an aggressive trade, as we have already just witnessed one of the sharpest moves in the history of the foreign exchange market, the yen cratering 16% in a mere two months. But market conditions call for such aggression. You have to strike when the iron is hot.

At least this structure gives us room to breath if the beleaguered Japanese currency suddenly gets hit with a bout of profit taking on shorts. The (FXY) would have to leap 3% against us in the next seven weeks for us to lose money on this trade.

Helping us is the fact that the move has been so fast, that a lot of money was left on the sidelines, waiting to buy on a dip that never happened. This should temper any moves up in the yen, and limit it to transitory moves at best. You are seeing the same circumstances in stock markets everywhere.

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 22 March 2013 (FXY) $115 puts at…………………$7.30
Sell short 22 March 2013 (FXY) $110 puts at..………….$3.10
Net cost:………….…………………………………………$4.20

Maximum potential profit at expiration: $5.00 – $4.20 = $0.80

(22 X 100 X $0.80) = $1,760 or 1.76% profit for the notional $100,000 portfolio.

FXY 1-28-13a
YCS 1-28-13a

Comments are closed.