I am taking my profit in the Euro (FXE) December $140 puts this morning, nailing the high of the day at $5.70, and clocking a stunning three day profit of 107%. This adds 5.63% to the year-to-date return for Macro Millionaire, taking us up to 46%. Non option players who bought the short Euro ETF (EUO) made 9.5%.

My net profit on the trade was $2.95. For the model $100,000 portfolio this works out to $5,310 ($2.95 X 100 X 18). And we made this return while keeping 76% of our money in cash, out of harm?s way.

This was a perfect trade in so many ways:

*For a start, I got a great entry point on top of a 10 cent rally in the Euro.

*The position was a great indirect ?RISK OFF? hedge for my sole remaining ?RISK ON? position in the (TBT). For every $1 I lost in the (TBT) since the Thursday high at $23.00, I made $2 on the Euro short.

*We got an assist in the bankruptcy of MF Global, which resulted in the liquidation of their entire $6.5 billion portfolio of Euro bonds, which put additional pressure on the European currency.

*We got a second assist from my friends at the Bank of Japan, who rushed to deflate the yen with a massive $130 billion round of intervention.

*I resisted the temptation to take a quickie 30% profit yesterday, believing that the trading community was caught badly off balance in their positioning, and that there was enough juice to take the Euro to my secondary target of $1.36.

*My friends at the People?s Bank of China told me they would take my advice and take down a big slug of any bond issue resulting from the European sovereign debt resolution. However, they said they would also take my advice and hedge out their Euro risk, making the trade currency neutral.

*I initially put on the trade expecting European Central Bank President, Mario Draghi, to cut interest rates tomorrow. With the Euro at $1.3630, I now don?t care if Mario has pasta al dente for lunch, a canole for desert, and sings O Solo Mio tomorrow. I can take my money and run at let the rest of the market run the overnight event risk. If Mario then fails to act tomorrow, I will simply resell the Euro higher up.

*We caught one of the sharpest moves in the history of the foreign exchange markets, some 5 cents in the Euro, in three trading days. You shouldn?t need to be told twice to cash in.

*No one ever got fired for taking a three day profit of 107%. Possession of the cash is 9/10ths of the law.

I know that some of you made more money on this trade than I did, because the $140 puts traded all the way down to $2.47 after the initial opening alert. No whining about not being able to get in this time. As they say down under ?Good on You!?

If you missed this trade for whatever reason, don?t chase it here. Another opportunity will come along. There are plenty of fish in the sea.

 

 

 

Diary Entry for Monday, October 31, 2011

Dear Diary,

4:30 PM Sunday- Looks like my Monday is going to start early this week. The head of the foreign exchange desk at one of Japan?s largest banks called and told me that the Bank of Japan was hitting all bids for the yen in any size at the Monday morning opening in Tokyo, heralding the beginning of a major intervention effort. I turn on my screens. The yen gaps down from ?75.30 to ?77.50 on the first trade. Looks like tomorrow is going to be a ?RISK OFF? day. Treasuries nosedive in the overnight market.

 

 

6:30 PM Sunday-Take kids to see the animated blockbuster, Puss & Boots, with voiceovers by Antonio Banderas, Penelope Cruz, and Selma Hayek. Notice how the kid movies are better than the adult movies these days. There are ample double entendres to keep the grownups entertained.

9:00 PM-Call from a friend at the People?s Bank of China in Beijing. He wants to know if they have missed the top of the Treasury bond market, and if they should start unloading their $1 trillion worth of holdings. I said don?t worry. While I expect the year ?RISK ON? trade to take the ten year yield up to 2.60% by year end, they will nosedive to 1%, and possibly go under Japanese ten year yields, if a recession hits next year. Plus, you will get a double kicker with a strong dollar. But please don?t try and sell ahead of a three day weekend, like you did last time. And thanks for the Peking Duck dinner in Shenzhen last week.

 

 

9:30 PM- Hit the sack and try and catch some shut eye before the next call.

2:00 AM-One of my former staff members at Morgan Stanley calls me from a Private Bank in Geneva to tell me that outgoing European Central Bank President, Jean Claude Trichet, said that he is not responsible for maintaining financial stability. What a moron! The Euro nosedives, break support at $1.40, and is already threatening $1.39. Sweet. My big Euro short against the dollar is looking good. I?m going to catch a hickey from my (TBT) position, but my profits from my short Euros should more than cover it.

 

 

 

3:00 AM- Call from one of the top New York trading houses. There are rumors that MF Global, once the world?s largest futures broker, will file for a Chapter 11 bankruptcy as soon as the court opens in 30 minutes. The firm?s risk managers are going apoplectic. Dow futures are down 200. The ?RISK OFF? day just got a turbocharger. I stagger back to bed and try to catch another hour of sleep.

5:00 AM-Woken up by an earthquake that sounds like a truck just hit the house. I turn on the TV and learn that I am directly above the epicenter. It?s the third one since Wednesday.

6:00 AM-My website administrator calls me in a panic. The store is down. A hacker attack prompted PayPal to suspend my account. Since I am one of their largest customers, I call my account rep and get it reopened.

6:30 AM- It?s official. MF files for Chapter 11. Sad to see them go. The Dow opens down 125. I have had a small account there for 20 years which I will have to close. I don?t bother calling because I know they will be flooded with inquiries by panicky customers. I?ll just wait for the check to come in the mail.

 

 

6:45 AM-I get flooded with 30 emails from Macro Millionaires asking if they should take the overnight 40% profit on their Euro short. I ignore them. Don?t bother me with the small change.

 

 

7:00 AM- Another call from my website administrator. The website is down. The Euro crash has brought a traffic spike that is causing the servers to melt. I am burning up the Internet.

7:30 AM- Conference call with support team. We agree to build in new infrastructure to accommodate a tenfold increase in new business. Couldn?t I be wrong just once to the growth down to a more manageable level? Pass.

8:00 AM- I get a call from a leading hedge fund in London?s Mayfair district. Europe is closing. Should we run the Euro short overnight? You betcha!

 

 

9:00 AM-Call from a large family office in Chicago. Should we use today?s strength in gold to lay out more hedges against core longs? Absolutely. Grab the brass ring. The barbaric relic is going to $1,500 before the fat lady sings, and will go lower if the recession next year is bad.

10:00 AM-Better get to work on today?s letter. I?m already behind the eight ball. I?ve gotta lead with the Macro Millionaire performance, which just hit a new high of 46%.

12:00-Break for lunch. Isn?t it great the way enchiladas always taste better after they have been reheated for a third day?

1:00-PM- Market close on their lows. Looks like another day of ?RISK OFF? for Tuesday.

1:15 PM-My friend, JR, a senior exec at an oil major, calls from Houston. What the hell was going on with the price of oil? Three weeks ago, it was at $75, then he blinked, and it was $95. I told him that the oil companies lost control of the price of Texas tea last year and the high frequency traders were now in the saddle. Better get used to the new frontier. It would help if he started following my trade alerts for crude. He said thanks, and next time I was in town he would buy me a 24 ounce chicken fried steak at Billy Bob?s that spilled over both sides of the plate. I can?t wait.

2:00 PM-Still haven?t started on the letter yet. I have been answering 200 email requests for information about Macro Millionaire. This always happens whenever I have a hot trade on. The watchers want to become players.

2:30 PM- I unplug the phones and close the curtains to do a one our live show on the recent market volatility for as a guest on a local radio station.

4:45 PM- Well, I got the letter done, but I?m too late. The web editor has gone trick or treating in Manhattan. This year, she is a vampire.

4:30 PM-The traffic stats for the site have gone down. I called the webmaster, but she has gone trick or treating too, in Dallas, dressed as a giant Taco.

5:00 PM-Ooops. Forgot to take the trash out.? My garbage man must wonder what goes on here. Every week, I recycle a giant bin of newspapers, magazines, and assorted broker research, but only throw out a tiny bag of actual trash. Am I green, or what?

6:30 PM-Time for trick or treat duty with a princess and the lion from The Wizard of Oz. Last year, I went as a hedge fund manager, but that went over like a lead balloon. So this year, I am a cowboy. I have these cool Justin cowboy boots which I bought in Fort Worth, Texas during my wildcatting days, but I can?t believe how much they have shrunk. I don my Stetson and I am out the door.

 

Those of us who live in the mountains in California pour out to the flat lands to trick or treat, looking for well-lit streets with lots of cul de sacs. As a result, these neighborhoods get flooded with thousands of kids. Up to 25 zombies, ninjas, mutant ninja turtles, skeletons, witches, Spidermen, and Buzz Lightyears mob the front doors, hands out for candy. Get a bunch of small kids together and they turn feral.

Some homeowners really get into it and build haunted houses. One house had this cool ?56 Chevy crashed into a tree with dead bodies hanging out the windows. I can?t believe how many adults dress up for this. The mom wearing the naughty school girl outfit was most appreciated.

9:00 PM - Back to my screens. The Euro has broken $1.39. Looking good. Down 3 cents on the day. Why didn?t I short the Russell 2000 (IWM) again? Was I asleep, distracted, or just not paying attention? Can?t catch them all.

 

 

10:00 PM-Time to call it a night and break out a bottle of Duckhorn merlot. How many wine clubs do I belong to now? 12? As of now I am committed to buy more wine this year than I can possibly drink or give away.

12:00 AM- Time to do some early Christmas shopping. Bonham?s in London is holding their fine jewelry auction today, and lot no. 62 is a 5 carat diamond solitaire that is a real beut.

 

 

12:10 AM-Damn! Outbid by the Chinese again, who are running up the price of luxury goods absolutely everywhere to insane levels. Time to get some sleep. Maybe next time.

3:00 AM-An old friend at the Bank of England calls me. Greek Prime Minister, George Papandreou, says he will hold a referendum of the bailout package. What a cretin! The Euro goes into free fall. The Dow futures are down 200, gold is off $75, and Treasuries have vaporized. Better get some sleep. It looks like tomorrow is going to be a busy day. Does anybody want my job?

 

Note to Greece: Please Quit Waking Me Up in the Middle of the Night!