Follow Up to Trade Alert - (FXY) May 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 -(FXY)
Buy the Currency Shares Japanese Yen Trust (FXY) July, 2014 $98-$101 in-the-money bear put spread at $2.65 or best
Opening Trade
5-19-2014
expiration date: July 18, 2014
Portfolio weighting: 10%
Number of Contracts = 38 contracts
?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:
* With the world?s structurally weakest major economy, Japan is certain to be the last country to raise interest rates. Interest rate differentials are the greatest driver of foreign exchange rates.
* This is inciting big hedge funds to borrow yen and sell it to finance longs in every other corner of the financial markets.
* Japan has the world?s worst demographic outlook that assures its problems will only get worse. They?re not making enough Japanese any more.
* 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 240% of GDP, or 120% when you net out inter agency crossholdings, Japan is at the top of the list.
* The Japanese long bond market, with a yield of only 0.60%, is a disaster waiting to happen.
*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.
When the big turn inevitably comes, we?re going to ?110, then ?120, then ?150. That works out to a price of $200 for the (YCS), which last traded at $62. 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 ?83 I see on my screen today is unbelievable. That would then give you a neat 17-year double top.
If you don?t have options coursing through your veins buy the 2X short yen ETF, the ProShares Ultra Short Yen (YCS), which go up when the yen goes down. Look to grab a double of points for the short term, and a double for the long term.
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 farther out.
Here are the specific trades you need to execute this position:
Buy 38 July, 2014 (FXY) $101 puts at?????$4.85
Sell short 38 July, 2014 (FXY) $98 puts at..??.$2.20
Net Cost:??????????????????.....$2.65
Potential Profit: $3.00 - $2.65 = $0.35
(38 X 100 X $0.35) = $1,330 or 1.33% profit for the notional $100,000 portfolio.
