Skip navigation

Tag Archives: foreign exchange

Sold off some options before expiry…….

The FX markets has proven to be most unpredictable.  On the March 22nd, I felt strongly that the USD was oversold and the charts seem to indicate it, however, after Yellen’s speech at the NY Economic Club, the USD was killed.

All the majors rallied against the USD and in fact, made new highs for 2016.  This was more disheartening, however, I was fortunate in that I played the potential opportunity while waiting for the market to come to me by way of options.  Therefore, I have accepted my absolute losses which was the premiums I paid for the options upfront.

I have been hearing from the banks and on the ground that many FX clients have been caught on the wrong foot.  Worse still though the USD has made back some gains, the JPY went against the rest of the majors by strengthening against the USD.  Can you imagine that the JPY has moved 5 big figures since the last week of March?!

Anyway, when I started seeing the USD gain back ground against the majors I decided to sell of two of my outstanding options; the GBPUSD Put Option and the AUDUSD Call Option.

On April 6th after London opened, the GBP was aggressive sold off, I decided not to wait again like I did two weeks and so decided to sell the put option at 1.4030 for a trading profit of 252bps (breakeven was 1.4282), option originally expiring on April 29th.

On March 31st after NY opened, the AUD continued climbing up against the USD, I put in an order to sell the call option at 0.7700 and it got triggered, locking in a trading profit of 280bps, call option had an expiry date of July 9th.

While the trades turned out in my favor it was not without days and weeks of disbelief that my call was potentially wrong, but instead of waiting closer to expiry, I decided not to star a gift horse n the face, so take profit on the options.

As you can see, the risk reward ratio wasn’t great, on average about 1:1.  A better trade would be 2:1 or higher.  Anyway, I am just glad to be out.

Now I still have three outstanding put options; EURUSD, USDJPY and AUDUSD which are not in the money and we are going into the second week of April.  I have some time left and let’s hope the market moves in my favor.

 

Putting my money where my mouth is…..?!

On Monday morning, I looked at the charts of the 4 majors and noticed that late US session on Friday, the USD was starting to claw back some ground.

I felt strongly that my hunch of a USD reversal is on the cards!

So I decided to get pricing to buy ATM put options expiring 29 April 2016 with the following details: –

EURUSD   –   Spot 1.1253, Premium 140bps, B/E 1.1113

GBPUSD   –   Spot 1.1253, Premium 180bps, B/E 1.1.4282

USDJPY   –   Spot 111.47, Premium 1.27bps, B/E 112.74

AUDUSD   –   Spot 0.7596, Premium 106bps, B/E 0.7490

I decided to execute all 4 put options with notional amounts of US$100Mn each.

It’s 6:38pm on Tuesday evening and where is the spot rate for the majors?  Well, it’s: –

EURUSD  –  1.1211

GBPUSD  –  1.4276

USDJPY  –  111.62

AUDUSD  –  0.7592

Looks like I am also breakeven on my GBP, a little ways for the rest, however, as I mentioned earlier, I feel strong that there will be a USD reversal within the next 30 days.

I mean look at how the majors moved against the USD at FOMC and more so post FOMC, on average about 400bps moves against the USD.

I don’t believe for a moment that these counties can survive on such strong currency valuations when their respective economies are anemic.

Ok, fingers crossed and toes crossed!!!

Good luck in your trading.

USD Reversal???

Since last Friday, the back of my neck was feeling itchy and I couldn’t thinking that the USD was oversold after the FOMC.

I decided to look at the 4H charts on the GBP, EUR, JPY and AUD and here they are: –

4H_usdjpy

4H_eurusd

4H_audusd

From a technical point of view, isn’t a USD reversal a high probability???

Janet Yellen’s speech and Q&A did not warrant such a strong sell down in the USD, this is my personal opinion.

I am looking at buying put options against the majors till maybe end of April, will have to check the premiums to ascertain whether it’s expensive or not.

The saga continues……………..

O/S AUDUSD Call Option expiring 26 August 2016

You will recall that I was a strong believer in the AUD and the Australian so much so that I bought two large call options.

The first with the following details: –

Spot: 0.7015

Premium: 288bps

Breakeven: 0.7303

Expiring 26 August 2016

I decided not to stare good fortune in the face and sold the option at 0.7603 for a 300bps trading profit.

Though the absolute amount of the trading profit is nice at US$5.4Million, from a risk reward ratio of near 1:1 (as the option cost me US$5Million), it wasn’t exactly a good trade.

However, I was not about to continue waiting for the Australia economy, I have somewhat lost faith in its rebalancing and rejuvenation away from mining.

The remaining AUDUSD call option expiring 9 July 2016 has a breakeven of 0.7420, I will take a chance and keep this option as I still have time on my side and who knows, maybe, some of the private banks are correct when they are forecasting AUDUSD at 0.7900 within the next 3 months.

FOMC; GBPUSD

I also put in a trade for the GBPUSD with the following details: –

GBPUSD   –   Stop if Offered at 1.4080 with SL at 1.4110, Spot at 1.4121, Stop if Bid at 1.4150 with SL at 1.4130

When the GBPUSD launched to the sky, it triggered my 1.4150 trade.

I squared it at 1.4236 for a trading profit of 115bps.  Including the 44bps from the EURUSD, FOMC allowed me to make a total trading profit of 159bps.

Thank you.

Time to try and sleep now.

FOMC

Today’s FOMC was anticipated to be fairly volatile, with the market largely managing expectations.

Nonetheless, I expected an opportunity to carve out a trade.

At 1.55am, I put in my straddle with the following details: –

EURUSD   –   Stop if Offered at 1.1050 with SL 1.1070, Spot at 1.1086, Stop if Bid at 1.1130 with SL at 1.1110

As it turned out, rates was kept steady at 0.50%, and statement indicated a possible further two hikes for 2016.

Fed acknowledges global slowdown and uncertainty, more importantly, it recognizes global risks may impact the U.S.

The EURUSD burst upwards triggering my Stop if Bid trade at 1.1130, I waited till about 2:08am and squared the trade at 1.1074 for a trading profit of 44bps.

I am done, not going to wait for the press conference.  As usual, don’t like to chase a trade during the press conference, it’s too volatile.

 

ECB Rate Decision, Draghi front and centre!

Alot of noise was buzzing in the media, some FIs were expecting big moves and other lesser moves.

Mostly all in consensus that Draghi will give out something better this time around, then, again, some felt that it will be a non event like the last time.  Volatility also spiked up and shorts we scaled back compared to December 2015.

I decided to put in a wider straddle with the following details at 8:40pm: –

EURUSD  –  Stop if Offered; 1.0930 SL 1.0950, Spot; 1.0966, Stop if Bid; 1.1000, SL 1.0980

As it turned out, the refinancing rate was cut to 0% from 0.05% and the widely expected cut in deposit rates of 0.10% to negative 0.40% from -0.30% was offered and asset purchases we expanded from EUR60Bn to EUR80Bn.

EURUSD went south immediately to 1.0870 and held there for a while and then a few minutes ago, went slightly further down to 1.0835, I decided to square the position at 1.0860.  Spot is now 1.0867.  Locked in trading profits of 70bps!

Thank you Mario Draghi!

Will I be participating in the market later during the press conference?  Don’t know, maybe and maybe not, but certainly I will be in front of the screen and listening into the press conference.

D-Day; Friday, 26 February; Prelim GDP!

The market was so quiet all week except for Wednesday’s drop in the afternoon or London opening, no significant data or was it because of the fall in the Shanghai equity market?

Anyway, I had a hunch market needed to go back to rational volatility where market responds accordingly to strong or weak data, minus all the noise from politicians and central bankers.

I figured US Prelim GDP was going to be a market mover. So at 9:25pm, I did the following trades: –

EURUSD  –  Call Option expiring 29 February, spot 1.1017, premium 37bps, BE 1.0975.

GBPUSD  –  Stop If Offered; 1.3955, SL 1.3975 with Spot at 1.3984 and Stop if Bid; 1.4015, SL 1.3990

When the Prelim GDP data came out much stronger at 1% q/q versus expectation of 0.4%, the market went wild.

I squared off the GBPUSD at 1.3909 at about 11pm for a trading profit of 66bps.

I squared off the EURUSD this morning Aussie session at 1.0920 for a trading profit of 55bps.

121bps for the one and only trade in February, not bad!

February was truly a frustrating month where irrational volatility dominated the financial markets.  It all started in early February during Chinese New Year celebrations in Asia; oil prices fell again, Shanghai market fell again, negative interest rate announced by BOJ.  Then, later in the month was the UK and fraternizing with Brexit.  Strong US data and USD weakens, weak Euro data and EUR strengthens…………absolutely crazy!

All in all, I put in 5 other trades during the month of February but because the market was irrationally crazy, I pulled out the orders each time I went in.

So I am so happy that I finally have a reprieve on Friday, February 26th to make a killing!!!

 

28 January 2016; UK preliminary GDP

As the preliminary GDP for UK is a data that the market is focusing on, I decided to place my straddle at 5:27pm with the following details: –

GBPUSD: –

Sell, Stop if Offered 1.4220, SL 1.4240

Buy Stop if Bid 1.4270, SL 1.4250

Spot: 1.4251

As it turned out, the preliminary GDP came in on the spot at 0.5% in line with forecast.

GBP moved upwards positively but somewhat muted, it triggered my trade at 1.5270 and I squared the trade at 1.4292 for a trading profit of 22bps.

Ok lah……………

ECB Rate Decision and Draghi Press Conference

Media buzz coming up to the ECB rate decision was somewhat subdued, most of the buzz agreed that Draghi won’t do anything today, after what he did in December 2015.

I wasn’t comfortable with today’s event so I decided not to put on my straddle and instead followed the market.

After the announcement that there was no change in interest rates and repurchase, the EURUSD stayed steady at 1.08990.

Seems that the market was looking forward to the press conference to ascertain how dovish or bullish Draghi was going to come across.

During the first few minutes of the press conference when Draghi was reading from the statement, the EURUSD shot up to 1.0925 when he said that the monetary policy taken in December was correct, more importantly, that it was in response to the economic situation.  He kept talking about comparing the monetary analysis and the economic analysis in deriving the appropriate monetary policy.

Then, when he started to say that the ECB has unlimited policy actions available to act if necessary, the EURUSD began to slide dropping back to 1.0880.

When it started to move down to 1.0850, I decided to chase the market and short the EURUSD at 1.0850.  Draghi further commented in the Q&A, that the ECB will review to reconsider to further easing if necessary and that it has unlimited tools it can use to achieve it’s goal.  The EURUSD continued its slide down to 1.0788.  At about 1.0791, I decided to square off the position and made a tidy trading profit of 59bps.  All this happened within the first 20mins of the press conference.

Ok, now I can peacefully spend Friday with my wife, to shop for the coming Chinese New Year, more importantly, we are indulging in a spa session tomorrow………..bonding time.

If I don’t get to wish everyone, here’s wishing all a great weekend.