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 - (FXY)
Sell the Currency Shares Japanese Yen Trust (FXY) July, 2013 $105-$108 in-the-money bear put spread at $3.00 or best
Closing Trade
7-2-2013
expiration date: July 19, 2013
Portfolio weighting: 10%
Number of Contracts = 41 contracts
Last night?s mark to market priced this spread at its maximum value. Past history tells me that this is a good time to take profits, especially when there is a nonfarm payroll looming on Friday.
The cash market is up 25 basis points since then, taking the cash market up to resistance at ?100. So it?s time to count this as a home run and move on. The risk/reward of carrying this position 13 more days until expiration is no longer desirable.
This position worked especially well, as the $5 cushion in the set up was just enough for us to weather a $5 move against us and still hang on. That?s what we got with a yen rally that ultimately moved $10 in the wake of the Great Bond Market Meltdown and the carry trade unwind that followed. This is why I always go modestly out-of-the-money on new positions. If the heat in the kitchen gets too hot, you can?t stay for dinner.
I think we could spend the rest of the summer flopping around this ?100 level. So I am going to wait for the market to come back to me before reentering a new yen position.
I can?t extoll at length here, as I must scamper off to my New York Strategy Luncheon. Put this one in the ?WIN? column.
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:
Sell 41 July, 2013 (FXY) $108 puts at?????$9.80
Buy to cover short 41 July, 2013 (FXY) $105 puts at..??.$6.80
Net Cost:????????????????.....$3.00
Profit at expiration: $3.00 - $2.45 = $0.55
(41 X 100 X $0.55) = $2,255 or 2.26% profit for the notional $100,000 portfolio.
