Follow Up to Trade Alert - (FXE) September 19, 214
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) October, 2014 $128-$130 in-the-money bear put spread at $1.73 or best
Opening Trade
9-19-2014
expiration date: October 17, 2014
Portfolio weighting: 10%
Number of Contracts: = 58 contracts
I?m not a person inclined to chase winning positions. Making money on one trade is certainly no guarantee that you will repeat the win on the next. Lightening doesn?t strikes twice in the same place.
Well, actually it does sometimes, especially when it comes to selling short the Currency Shares Euro Trust (FXE).
This is a bet that the (FXE) October, 2014 $128-$130 in-the-money bear put spread does not close above $128.27 by the October 17 expiration in 19 trading days.
If it closes below $128, then you get to keep the maximum profit. Your $1.73 investment turns into $2.00 in a month, a gain of 15.60%. If we get near the $128.27 breakeven point, we?ll just stop out.
Given the European Central Bank?s dramatic action weeks ago to implement an aggressive program of quantitative easing, the entire world has been trying to sell short the beleaguered continental currency.
This means running the Euro printing presses non-stop, much like the Federal Reserve started doing five years ago. Overnight Euro interest rates have already been chopped to negative numbers. Even my cleaning lady, Cecelia, knows she should be unloading her Euros.
The trouble is that the currency has already plunged 12 cents, or almost 10% since its May top. In the currency world, this is a big move.
However, we needed an event, or an uncertainty removed, before we could go back in on the short side.
We got that last night with the Scottish independence vote, which failed by an overwhelming 55% to 45% margin. This is encouraging traders to abandon restraint, and dump more Euros, breaking key one-week support at the $1.27 level in the cash market.
You have to go to the weekly charts to find the next support levels, but it?s clear that $1.26, and then $1.20 beckon.
I never had any doubt about this outcome. As I told my Scottish friends (my ancient ancestors were the Ramsey?s from Perth, maybe that?s where I get my warrior spirit?), you hate the government, so you want to create a second one?
The final nail in the coffin came when every major bank announced they would quickly depart newly independent Scotland for friendlier shores.
We live in a world of chase now. All asset classes, from stocks to bonds, currencies, precious metals, oil, and even food, are at the extended end of very large one-way moves. However, the Euro is only three weeks into what could be a five-year move towards $1.00.
Think of it as buying the US stock market in 2009. I?d rather sell the (FXE) at the beginning of a five year move, than buy in the middle of a 10 year appreciation, which is what we are seeing in US stocks now.
This is also a play on the US bond market. Any fall in Treasury bond prices and rise in yields, a pretty safe bet over the medium term. This will be happening while Euro interest rates are falling, giving a huge yield advantage to the greenback.
As regular readers of the newsletter know, interest rate differentials are the largest drivers of foreign exchange rates. It?s as simple as that.
If you need a third argument for this position, it is a bet on the continued virility of the US fracking industry. Every additional barrel we produce in America means one less imported from the Middle East, and (as of today) $93 less sold in the foreign exchange markets.
Frackers have already cut our import bill from $400 billion to $250 billion in the past five years, prompting a staggering decline in our dollar outflows.
They are also eliminating our country?s need to maintain expensive ground forces there to protect oil supplies. Every fracking job created in the windswept planes of North Dakota means one less soldier stationed abroad.
This savings will eventually eliminate the government?s present $400 billion budget deficit. Our newest war in the bleak sands of Syria and Iraq, fought with F-16?s, drones, and Special Forces for targeting, will cost pennies on the dollar when compared to previous conflicts.
You can buy this put spread anywhere within $1.70-$1.80 and have a reasonable expectation of making money on this trade.
If you can?t buy and sell options, then just buy the ProShares Ultra Short ETF (EUO) and forget about it. I know I?ve been recommending this 2X bear ETF since it was at $17. But if I?m right, and we target parity between the Euro and Uncle Buck, this ETF should rocket from today?s $19.33 to $30.
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 58 October, 2014 (FXE) $130 puts at?????$3.60
Sell short 58 October, 2014 (FXE) $128 puts at..??.$1.87
Net Cost:??????????????????.....$1.73
Potential Profit: $2.00 - $1.73 = $0.27
(58 X 100 X $0.27) = $1,566 or 1.57% profit for the notional $100,000 portfolio.
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