Follow Up to Trade Alert - (FXE) October 29, 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 - (FXE)
Buy the Currency Shares Euro Trust (FXE) November, 2013 $138-$141 bear put spread at $2.65 or best
Opening Trade
10-29-2013
expiration date: 11-15-2013
Portfolio weighting: 10%
Number of Contracts = 38 contracts
Reviving economic fortunes in Europe have delivered a great run for the Euro (FXE), taking it up from a low of $1.2650 in early July to a high of $1.3680 last week. Ten cents is a big move.
Unfortunately, it has run too far too fast, and now threatens to smother the continent?s nascent recovery in the crib. European Central Bank president, Mario Draghi, has noticed this, and could try to jawbone the currency down when he speaks next week. Hard won gains in European business confidence are not to be given up lightly.
On top of that, I wanted to get one more ?buy the rumor, sell the news? type trade on in the run up to tomorrow?s Federal Reserve Open Market Committee meeting. Of course, everyone already knows what the outcome will be, i.e. no change in interest rates or guidance. However, the risk of surprise will be gone by Wednesday afternoon, and that could be worth 150 basis points for profit taking in the Euro.
The great thing about the? $138-$141 bear put spread set up is that we get to strap on this short position just ahead of major technical resistance for the (FXE) on the charts at $138. Think of it as wearing a pair of braces (suspenders in the US) along with your alligator skin belt.
This isn?t exactly a bet the ranch trade. There are only 13 trading days left to expiration. The (FXE) would have to gain by $2.38 by then for us to lose money on this position, which is a lot.
There aren?t any major geopolitical events on the horizon to generate that kind of move, unless we get a surprise interest rate hike in Europe, which isn?t going to happen. If anything, Europe should be cutting interest rates to prevent an artificially overvalued Euro from killing the recovery.
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 38 November, 2013 (FXE) $141 puts at????$4.85
Sell Short 38 November, 2013 (FXE) $138 puts at.?.$2.20
Net Cost:????????????....??..??......$2.65
Potential Profit: $3.00 - $2.65 = $0.35
($0.35 X 100 X 38) = $1,330, or 1.33% for the notional $100,000 model portfolio.
