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 -(FXY)
Buy the Currency Shares Japanese Yen Trust (FXY) December, 2013 $101-$104 in-the-money bear put spread at $2.70 or best
Opening Trade
11-12-2013
expiration date: December 20, 2013
Portfolio weighting: 10%
Number of Contracts = 38 contracts
My bet that the Japanese yen (FXY) would weaken against the dollar has paid off handsomely. I am now so confident that we are finally breaking out of a six month trading range to the downside that I am more than happy to double my short position in the yen.
I am therefore taking on the Currency Shares Japanese Yen Trust (FXY) December, 2013 $101-$104 in-the-money bear put spread, moving $1 down in the strikes, but keeping an ever shortening December 20 expiration. The other nice thing about this position is that we will benefit greatly from time decay going into the volatility sapping Thanksgiving and Christmas holidays.
The official reason for the weakness is that the shockingly strong October nonfarm payroll released on Friday will prompt the Federal Reserve to taper its quantitative easing program sooner than later, possibly as early as the December meeting. That would raise interest rates for the greenback while yen interest rates will remain nailed to zero for years to come. This is important, as interest rate differentials are the primary driver in the foreign exchange markets.
The real reason is that traders expect the Bank of Japan to become more aggressive in its campaign to weak the yen and further stimulate economic growth. Japanese companies are now reporting blockbuster earnings, thanks to a falling yen, and the central bank would like to see more of the same.
With the Japanese government actively seeking to cut the knees out from under their own currency, while the Fed will soon take moves to strengthen theirs, a short yen/long dollar trade here a no brainer.
The Tokyo stock market is certainly a believer. Last night, the Nikkei average soared by 2.2%, the biggest move in three months. That?s why I have also been recommending the Wisdom Tree Japan Hedged Equity ETF (DXJ) for longer-term investors, a long stock/short yen ETF.
For more depth on why the Japanese yen is about to crater, please read ?The Party is Just Getting Started with the Japanese Yen?.
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.
If you can?t do the options then buy the short yen ETF (YCS) outright. We could be in for some mileage here.
Here are the specific trades you need to execute this position:
Buy 38 December, 2013 (FXY) $104 puts at?????$6.00
Sell short 38 December, 2013 (FXY) $101 puts at..??.$3.30
Net Cost:??????????????????.....$2.70
Profit at expiration: $3.00 - $2.70 = $0.30
(38 X 100 X $0.30 ) = $1,140 or 1.14% profit for the notional $100,000 portfolio.
