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.
Trade Alert – (FXY)-update
Buy the Currency Shares Japanese Yen Trust (FXY) May, 2016 $91-$94 in-the-money vertical bear put spread at $2.70 or best
expiration date: May 20, 2016
Portfolio weighting: 10%
Number of Contracts: 38 contracts
The Bank of Japan meeting came and went last night, with no decisive move on quantitative easing or interest rates one way or the other. We have to wait another month for the central bank to move.
This has created a nice spike 3% up in the yen and another good entry point on the short side.
Best case, the yen collapses immediately. Worst case, we grind sideways in a narrow range for three more weeks.
I am therefore going to buy the Currency Shares Japanese Yen Trust (FXY) May, 2016 $91-$94 in-the-money vertical bear put spread. It is a bet that the (FXY) will not trade above $91 by the May 20 expiration in 16 trading days.
The (FXY) is currently trading at $89.08.
If for any reasons you can?t do the options, just buy the ProShares Ultra Short Yen ETF (YCS) outright. This is the best entry point in a year.
I think we are at the tag ends of the recent unbelievable bout of yen strength.
Triggered by the Bank of Japan?s shocking move to negative interest rates (NIRP), it has been driven my a massive unwind of hedge fund positions in everything around the world that were all financed by short yen positions.
The memo is out now, and the bulk of the ?hot money? positions are gone. After some fits and starts, I expect the yen to resume its long-term structural downtrend shortly.
You can execute this spread anywhere in the $2.70-$2.80 range and have a good shot at making money in the 16 trading days to expiration.
?Oh, how I despise the yen, let me count the ways.?
I?m sure Shakespeare would have come up with a line of iambic pentameter similar to this if he were a foreign exchange trader. I firmly believe that a short position in the yen should be at the core of any hedged portfolio for the next decade.
To remind you why you hate the currency of the land of the rising sun, I?ll refresh your memory with this short list:
1) With the world?s structurally weakest major economy, Japan is certain to be the last country to raise interest rates. Interest rate differentials between countries are the single greatest driver of foreign exchange rates. That means the yen is taking the downtown express.
2) This is inciting big hedge funds to borrow yen and sell it to finance longs in every other corner of the financial markets. So ?RISK ON? means more yen selling, a lot.
3) Japan has the world?s worst demographic outlook that assures its problems will only get worse. They?re just not making enough Japanese any more. Countries that are not minting new consumers in large numbers tend to have poor economies and weak currencies.
4) The sovereign debt crisis in Europe is prompting investors to scan the horizon for the next troubled country. With gross debt well over a nosebleed 270% of GDP, or 160% when you net out inter agency crossholdings, Japan is at the top of the list.
55) The Japanese ten-year bond market, with a yield AT AN ABSOLUTELY EYE-POPPING -0.11%, is a disaster waiting to happen. It makes US Treasury bonds look generous by comparison at 1.85%. No yield support here whatsoever.
6) You have two willing co-conspirators in this trade, the Ministry of Finance and the Bank of Japan, who will move Mount Fuji if they must to get the yen down and bail out the country?s beleaguered exporters and revive the economy.
When the big turn inevitably comes, we?re going from the current ?108.50 to ?125, then ?130, then ?150. That works out to a price of $150 for the (YCS), which last traded at $71.16. But it might take a few years to get there.
If you think this is extreme, let me remind you that when I first went to Japan in the early seventies, the yen was trading at ?305, and had just been revalued from the Peace Treaty Dodge line rate of ?360.
To me the ?108.50 I see on my screen today is unbelievably expensive.
The best execution for the options 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.
To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of optionshouse.
If you are uncertain on how to execute an options trade, please watch my training video on ?How to Execute a Vertical Bear Put Debit Spread? by clicking here at https://www.madhedgefundtrader.com/ltt-executetradealerts/. You must be logged into your account to view the video.
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, and the liquidity in the options market isn?t that great these days. If you can?t get done at the $2.60 price, then keep raising you bid in 5 cent increments until you succeed. If that doesn?t work, then just walk away.
Here are the specific trades you need to execute this position:
Buy 38 May, 2016 (FXY) $94 puts at?????$5.00
Sell short 38 May, 2016 (FXY) $91 puts at..??.$2.30
Potential Profit at expiration: $3.00 – $2.70 = $0.30
(38 X 100 X $0.30 ) = $1,140 or 11.11% profit on the position in 16 trading days.