Follow Up to Trade Alert - (FXY) November 3, 2015
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) December, 2015 $82-$84 in-the-money vertical bear put spread at $1.77 or best
Opening Trade
11-3-2015
expiration date: December 18, 2015
Portfolio weighting: 10%
Number of Contracts = 56
?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 the Bard of Avon 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. They should start importing Syrians.
* The sovereign debt crisis in Europe now behind us, investors are scanning the horizon for the next troubled country. With gross debt well over a nosebleed 280% of GDP, or 140% 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 a pitiful 0.30%, 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 ?130 then ?150, then ?180. That works out to a price of $200 for the (YCS), which last traded at $94.93. 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 ?125 I see on my screen today is unbelievable. That would then give you a neat 17-year double top.
It looks like a new ?RISK ON? leg is underway. Stocks are strong, oil is up, junk bonds are rallying, and gold is trash.
More importantly, the Treasury bond market is in free fall, breaking though to the new lower range that I anticipated, started its run it a 2.30% yield.
When interest rates are rising in a ?RISK ON? environment, there is one trade you should be reaching for like a Pavlovian dog.
You should be selling short the Japanese yen.
A short in the yen is a safe, low risk trade right here in a world gone crazy.
You can buy this vertical bear put spread anywhere within a $1.70-$1.80 range and have a reasonable expectation of making money on this trade.
These options aren?t that liquid, nor is the potential profit off the charts. But if you can get the spread at the right price, there is some easy money here.
With the Euro (FXE) in free fall, the yen can?t be far behind.
If you can?t do the options, then buy the ProShares Ultra Short Yen ETF (YCS) outright.
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.
If you are uncertain on how to execute an options spread, please watch my training video on ?How to Execute a Bull Call Spread? by clicking here at https://www.madhedgefundtrader.com/ltt-executetradealerts/
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 56 December, 2015 (FXY) $84 puts at?????$3.85
Sell short 56 December, 2015 (FXY) $82 puts at..?.$2.08
Net Cost:??????????????????.....$1.77
Profit at expiration: $2.00 - $1.77 = $0.23
(56 X 100 X $0.23 ) = $1,288 or 1.29% profit for the notional $100,000 portfolio.
