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 - (FXE)
Sell the Currency Shares Euro Trust (FXE) September, 2014 $133-$135 in-the-money bear put spread at $1.97 or best
Closing Trade
8-25-2014
expiration date: September 19, 2014
Portfolio weighting: 20% down to 10%
Number of Contracts = 61 contracts
We have snatched 92% of the potential profit in this trade, riding the Euro (FXE) down on the short side, from $1.33 down to $1.30. The risk/reward of continuing with such a large position is no longer justified.
So I am going to reduce my overweight position down from 20% back to a more normal 10%. If you are similarly overweight the ProShares Ultra Short Euro ETF (EUO), I would also be lightening up, retuning to a normal weighting there as well.
I have not suddenly fallen in love with the beleaguered continental currency. I think we are headed towards $1.27, $1.20, and eventually $1.00. This is just a short term tactical move.
That way, if by some miracle, we get a two-cent rally in the Euro, I will have plenty of dry powder to reload with and add more shorts.
The big event of the weekend was European Central Bank President, Mario Draghi, ramping up his war on his own currency.
On Friday evening, after the markets closed and traders were long gone for the Hamptons, Bal Harbor, or Napa Valley (oops), Draghi ramped up his rhetoric, warning that he would use ?all available tools? to spur Europe?s economy. This is central banker talk for throwing down the gauntlet at the feet of the monetary hawks (read Germans).
He then threw the fat on the fire, opining that the recent decline an inflation expectations were a concern, and this was a topic for the coming September 4 ECB meeting. Translation: this is a central banker?s equivalent to giving the hawks the middle finger salute, and then putting the pedal to the metal on the easing front.
The bottom line for all of this is that the ECB is almost certain to cut Euro interest rates next week. As interest rates differentials are the primary driver of foreign exchange markets, this is great news for the greenback and terrible news for the Euro.
After that, we may get a small rally in the Euro, as short sellers, like myself, take profits. This has been the pattern with other Euro interest rates reductions in the past. That is the rally I want to resell into.
You can expect this pattern to continue until Europe solves its structural monetary problems, which will take years. The current flawed system dramatically undervalues Germany?s currency, while overvaluing the currencies of Italy, Spain, Portugal, and Greece.
This is why the German economy is healthy, while everyone else?s economies suck. Without the Euro, the old deutschmark would be double or triple what it was, demolishing the country?s massive export business. In the meantime, the other countries would be devaluing their own currencies like crazy.
We caught the entire reaction to Draghi?s verbiage at this morning?s opening, with the Euro gapping down a full half-cent against the dollar. The stop loss selling was severe.
I wish all my trades were this easy. Since I doubled up on the short side, the Euro has been in a complete free fall. European dithering has been one of the lowest risk bets of 2014.
That said, I think I?ll get back to cleaning up my earthquake damage.
Keep in mind that the options market is highly illiquid now, so don?t hold me to these prices. They are ballpark estimates, at best.
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. 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:
Sell 61 September, 2014 (FXE) $135 puts at?????$4.88
Buy to cover short 61 September, 2014 (FXE) $133 puts at...$2.91
Net Proceeds:??????????????????.....$1.97
Profit: $1.97 - $1.63 = $0.34
(61 X 100 X $0.34) = $2,074 or 2.07% profit for the notional $100,000 portfolio.
