Follow Up to Trade Alert - (FXA) November 14, 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.
Further Update to: Trade Alert -(FXA)
Buy the Currency Shares Australian Dollar Trust (FXA) December $89-$91 bull call spread at $1.80 or best
Opening Trade
11-14-2013
expiration date: 12-20-2013
Portfolio weighting: 10%
Number of Contracts = 56 contracts.
We have a fantastic double bottom developing here on the charts for the Australian dollar (FXA). I think that RISK ON will be the order of the day for the next six months, and the currency of the Land Down Under should prosper mightily.
This is a play on the modest recovery of the Chinese economy continuing, as Australia is far and away their largest supplier to them of bulk commodities. It is also a bet that the global synchronized recovery remains on track in 2014, as I expect.
You can see from the chart below that the Australian stock market (EWA) is also reaching this conclusion, putting in a similar short term bottom to the (FXA). For a third assenting vote, look at the chart of copper producer Freeport McMoRan (FCX).
We did well with our last long play in the Aussie. Since then, we have seen a 4.5% pullback, almost exactly a 50% retracement from $88.5 to $97.5. This was prompted by more negative comments from the governor of the Reserve Bank of Australia, who is making every effort to talk his currency down and strengthen his own economy.
These (FXA) options are fairly illiquid, and trade at double the normal spread found in the foreign exchange options market, so execution here is crucial. Put in a strict limit order for the spread that works for you. If you don?t get done, just walk away and wait for the next Trade Alert, of which there will be many.
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.
Keep in mind that these are ballpark prices only. Spread pricing can be very volatile on expiration months further out.
Here are the specific trades you need to execute this position:
Buy 56 December, 2013 (FXA) $89 calls at?????..?$4.25
Sell short 56 December, 2013 (FXA) $91 calls at??....?$2.45
Net Cost:????????????....??..??.......$1.80
Potential Profit: $2.00 - $1.80 = $0.20
($.20 X 100 X 56) = $1,120 ? 1.12% for the notional $100,000 model portfolio.
