Cie La Vie………….I knew it was a bet on my part which is why I positioned a smaller nominal size on this option trade.
Well, as it turned out, ‘rumours that ECN may implement negative interest rates’ tanked the Euro by more than 150bps.
The call option expired worthless and I suffered a loss of 28bps.
I had to leave my trading desk this evening, but felt that the EURUSD was going to move up somewhat, based on my technical analysis; Ichimoku and possible better ZEW Economic Sentiment at 6pm (Singapore time).
So at about 5pm, I bought a small position, one day call option on the EURUSD expiring November 20th; Spot: 1.3515, Premium: 28bps and Breakeven: 1.3543.
Unfortunately, the ZEW Economic Sentiment came out lower than forecast at 60.2 versus 63.1, more importantly, is that the German ZEW Economic Sentiment came out flat at forecast of 54.6, so still staying above the 50 threshold level. What is more important is the counterbalancing stronger Germany versus the rest of the weaker Euroland.
EURUSD has stayed in a narrow range since issuance of data between 1.3491 and 1.3519. Let’s see if my trade fairs better tomorrow, we still have time till NY 10am.
On September 4th; the 4H chart was illuminating as the spot rate cut above the 200 day moving average of 0.9063.
More importantly, was the fact that the Ichimoku showed a cut up on September 3rd at 0.8986.
So we had the first confirmation from Ichimoku and then the second confirmation from the cut up of the MA, I should have done this analysis back on September 3rd when I did the spot trade and also the 2 day call option. Had I done a longer dated analysis, I would have paid the higher premium to capture the BIG move.
Looking at the Daily chart the next critical level is 0.9321, if the spot level breaks the Ichimoku cloud on the upper side, then, we have a new bull trend in the AUD.
What’s important now is to learn from hindsight so that going forward we do not lose the potential opportunity if it presents itself again. Believe you me, the opportunity will come again, this is the wold of FX.
On the same day of September 3rd, I bought a call option on the AUDUSD for two days expiring September 5th. The spot was 0.8982, breakeven was 0.9032 and the premium was 50bps.
On September 4th about 11pm Singapore time or 11am NY time, I decided to sell the option as the spot was at 0.9180, I made a yum yum profit of 148bps or a 2.96X payout, not bad at all. My initial expectation was between 2X to 2.2X.
I bought a 2 week call option on the USDJPY at the strike of 94.15 and breakeven of 95.86, that is, 1.71bps for the cost of the premium which is pretty expensive as volatility was high. However, my technical analysis plus the news out of Japan and Abenomics, I was confident that the yen would weaken.
I bought back the option on the last day at 0.9750 for a nice trading profit of 16.8%.
Option expiring 15 July or 15 August.
1 month; Strike 0.9600, Breakeven 0.9715, premium payable is 115bps.
38% target at 1.0027, difference is 312bps, payout is 2.7X.
50% target at 1.0137, difference is 422bps, payout is 3.67X
2 months; Srike 0.9600, Breakeven 0.9785, premium payable is 185bps.
38% target at 1.0027, difference is 242bps and payout is 1.30X
50% target at 1.0137, difference is 352bps and payout is 1.90X.
Tenure: 1 month expiring 15 July 2013.
Strike 94.90, BE 96.79, premium is 1.89
Target; 100.38, difference is 3.59 or payout ration of 1.89X.
Looks good, need to consider quickly and execute the trade.
EURUSD
———–
The EURUSD is currently trading above the 61.8% level of 1.3321, the 76.4% is at 1.3437 and the 100% is at 1.3640 established on 1 February 2013.
Last night’s high was at 1.3385and the low was at 1.3282.
GBPUSD
———–
The GBPUSD is presently trading above the 61.8% level of 1.5754 with the 76.4% at 1.5957 and the 100% at 1.686 established on 21 December 2013
Last night’s high was at 1.5723 and the low was at 1.5650.
AUDUSD
————
The AUD is a currency that really begs to be thrashed. The current spot is trading below the 0% level of 0.9671, the 23.6% is at 0.9891, 38.2% is at 1.0027 and the 50% at 1.0137. How much will it take to drive the AUDUSD to the 50% level, I don’t think alot. Home loans is down, consumer sentiment is down, however, employment is up and unemployment is down.
Let’s look at this more closely.
My hunch tells me that there is opportunity in the following: –
Call option on the AUDUSD
Call option on the USDJPY
Put option on the GBPUSD
Right now, we need to do a cost benefit analysis to determine which strategy is cost efficient and profit effective.
After last night’s spectacular moves by the EUR and GBP averaging more than 190bps, the current spot is at the 50% retracement level. The market can now make very violent swings given the current volatility.
While I am of the opinion that the non farm payroll numbers will probably disappoint given the earlier poor showing of the ADP numbers, we are going into Spring and the start of new job placements. On the off chance, that the non farm payroll numbers coming in stronger than forecast, we should see USD powering back against the EUR and GBP.
Volatility in equities and forex are high right now, and hedging through the options or CFD market is very expensive.
If one is being prudent to potentially capture either the upswing or downswing, buy a call/put spread option would be a safe bet, as one would WIN either way. However, the cost of the spread option till Monday 10 June is a hefty 114bps. So is it worth it? NO.
Which means, one will have to take a gamble on one side. My advice is to place a stop loss as it is our only protection.
I am deciding to stay out of the market today and instead, spend time with my wife going to the spa and a nice dinner.
Here’s wishing all of you a great weekend. Remember, in the forex market there is always another day of opportunity, so if you don’t feel comfortable…….don’t push yourself.
What a surprise, just when I thought I was going to have to write off this option.
I am truly puzzled, Draghi’s speech last night was not encouraging nor negative, no reason for the EUR to surge upwards like a bat out of hell.
The big move happened during lunch time NY session, which hints to me that it was stop losses, options, and program trading that triggered the EUR and moved it upwards.
I have no confidence in the Eurozone and I feel that it has do to more if the Eurozone is to recover from its recession.
Therefore, I have made the decision to sell the option at 1.3260 this morning and locked in profits of 85bps or 0.64%.
I am born in the Year of the Tiger.
The Panthenon Investment Group 