Hmmmmm…………..this has been a disappointing trade, we knew back then when we were placing the option trade that the technicals showed a high probability of a breakout based on the bollinger bands, however, we didn’t know which direction it was going to break out on.
Our hunch told us that the crisis in the Euro should settle down for the time being, but the Cyprus issue really knocked down the Euro.
The current spot of 1.2805 is the lowest level for 2013 and way below our breakeven of 1.3180. It is unlikely that we are going to make any monies from this option and the premium paid of 81bps will be a loss.
This is an excellent example of risk management. We knew the Euro was going to breakout, but we didn’t know which direction, we made a bet on going long by buying a call option and we were wrong.
However, if we had a done a spot trade, we would be staring at nearly 200bps loss, in this case, we risk managed for a loss of 81bps.
The Panthenon Investment Group 