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 Explanation to: Trade Alert - (FXE)
Buy the Currency Shares Euro Trust (FXE) September, 2013 $133-$135 put spread at $1.65 or best
Opening Trade
7-18-2013
expiration date: 9-20-2013
Portfolio weighting: 10%
Number of Contracts = 60 contracts.
Traveling around Europe this month, one thing has become abundantly clear to me. The economy is in terrible shape. The deep discount sales have broken out like a contagious virus, with discounts on merchandise of 50%-80% common. And this is the fifth year in a row that I have seen them.
What?s more, the future course of interest rates for the Euro is likely to be flat or even down, while American rates are rising. That only spells one thing: It is time to sell short the Euro.
Sure, the Chinese central bank is in there buying every dip in the beleaguered currency as part of a broader effort to diversify reserves away from the greenback. But they tend to come in at bottoms, as is their genetic predisposition as natural traders to do so, and the nearest one is five cents away in the spot market. That gives us room to scoot in with short dated bear put spread and make some quick money.
Spending the three days scouring Berlin vintage clothing shops for that great used German suede jacket, which I finally found in my size for all of eight euros, I discovered something else. Germany?s economy is stronger that everyone else?s because they are still rebuilding from WWII, while other continental countries finished decades ago.
Yes, I know that 1945 was a long time ago. But the current phase of reconstruction only started in the old East Germany in 1992, just after the reunification. You see this everywhere in the massive construction projects for infrastructure, like autobahns, railways, airports, subway systems, office complexes, and government buildings.
Tearing down the Berlin wall and the old border barriers was a major project on its own. This is all great for the Fatherland?s GDP growth, and I know that it is being done with large-scale borrowing. Germany is in effect building an entire new country, much like China is on a grander scale.
There is another reason to sell short the euro at this particular point. If you look at the chart, we could be forming the right shoulder of a head and shoulder top. If so, this could deliver us to our $1.26 downside target in the cash market very quickly, and possibly lower.
Please excuse any typos in this alert, as it is being written on a German express train from Berlin to Frankfurt. The train is late and the engineer is trying to make up lost time, so the cars are bouncing all over the place, first class or not. I?ve got to make that strategy luncheon tomorrow, one way or the other.
For those who are interested, my other short-list of trades to do include shorting the Japanese yen (FXY), (YCS) and buying Japanese stocks (DXJ). The Japanese Upper House elections are this weekend, and Abe?s LDP is supposed to win by a landslide. I want to sell short oil (USO) on the Egypt spike.
I also want to sell short the Australian dollar (FXA) on a bigger rally. I met the CEO of a major Australian company in the lobby of the Hotel Adlon in Berlin this morning while checking out, and he says they are looking for the high 80?s at the very least.
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 further out.
Here are the specific trades you need to execute this position:
Buy 60 September, 2013 (FXE) $135 puts at????$5.70
Sell Short 60 September, 2013 (FXE) $133 puts at.??.$4.05
Net Cost:????????????....??..??......$1.65
Potential Profit: $2.00 - $1.65 = $0.35
($0.35 X 100 X 60) = $2,100 ? 2.10% for the notional $100,000 model portfolio.
