Follow Up to Trade Alert - (FXE) August 19, 2014
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.
Further Update to: Trade Alert - (FXE)
Buy the Currency Shares Euro Trust (FXE) September, 2014 $133-$135 in-the-money bear put spread at $1.81 or best
Opening Trade
8-19-2014
expiration date: September 19, 2014
Portfolio weighting: 10% increase to 20%
Number of Contracts = 55 contracts
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You usually don?t expect US housing data to cause the collapse of a foreign currency. But that is exactly what happened this morning.
The announcement by the Census Bureau that new home stats for July came in at a breathtaking 1.09 million, up 15.7%, blew away even the optimistic forecasts. Earlier figures for June were revised up substantially.
New building permits for July came in at a robust 1.1 million. Perma bears on the housing market were sent scampering to lick their wounds.
The real shocker was that the Euro promptly dropped 50 basis points, piercing a major support level on the long term charts. The short Euro ETF (EUO), which I have been recommending since the spring for my non-option clients skyrocketed. That clears the way for a run in the (FXE) down to $127.
The (FXE) wasn?t the only asset that saw a kneejerk reaction. The Treasury bond market (TLT) dove by 1 ? points. It is now 2 ? points off the short squeeze high last Friday, when false rumors of a Russian invasion of the Ukraine caused traders to panic. This sent the ProShares Ultra Short 20+ Year Treasury ETF (TBT) soaring, which I am also long.
You can come up with a nice academic theory as to why there is a connection between American housing data and the beleaguered continental currency. Stronger housing means a better economy and higher dollar interest rates, sooner.
As interest rates differentials are the primary driver of foreign exchange markets, this is great news for the greenback and terrible news for the Euro.
The truth is a little more complicated than that. The outlook for the European economy is now so poor, thanks to the sanctions against Russia, that traders and investors have been desperate to add to their short positions. After the prolonged, one-way move down we saw this summer, the Euro managed barely a one-cent short covering rally in the past week.
The European Central Bank is almost certain to lower Euro interest rates and expand quantitative easing at a September or October meeting. This will weaken the Euro further, paving the way for a move to $127, and eventually $120.
That?s why I am doubling my shorts in the (FXE) today, even though we are at the low for the year. Non-options players should buy more of the ProShares Ultra Short Euro ETF (EUO).
Keep in mind that the options market is highly illiquid now, so don?t hold me to these prices. They are ballpark estimates, at best.
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 execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
If the price of this spread has moved more than 5% by the time you receive this Trade Alert, don?t chase it. Wait for the next one. There are plenty of fish in the sea.
Here are the specific trades you need to execute this position:
Buy 55 September, 2014 (FXE) $135 puts at?????$3.75
Sell short 55 September, 2014 (FXE) $133 puts at..??.$1.94
Net Cost:??????????????????.....$1.81
Potential Profit: $2.00 - $1.81 = $0.19
(55 X 100 X $0.19) = $1,045 or 1.05% profit for the notional $100,000 portfolio.
