This afternoon at about 4pm, my technicals; ichimoku, ma and stochastics indicated a potential trade.
I decided to short the GBPUSD at 1.6380 and then squared the trade right after the weaker Services PMI data at 1.6338 for a trading profit of 42bps.
I did a quick trade last night during NY session; entered Long GBPUSD at 1.6328 and squared the spot position at 1.6369 for a 41bps trading profit.
Wow……….wow…………wow………..the EUR and GBP collapsed!
I squared the two put options; one on the EURUSD and the other on the GBPUSD as follows: –
GBPUSD; BE 1.6107 and sold the option at 1.5966 for a trading profit of 144bps
EURUSD; BE 1.3713 and sold the option at 1.3518 for a trading profit of 196bps
I must confess that was really a lucky trade. I did these two short dated option trades because I was only comfortable to give up so much for the premiums just in case I was totally wrong.
The ADP came out weak, Chicago PMI came out strong, Bernanke was neutral, I also truly couldn’t explain the big drop in the majors except to say that I was lucky.
These two trades were totally predicated on looking at technicals; Ichimoku, Stochastics and Bollinger bands, it all pointed to a oversold USD. More importantly, I was prepared to gamble away the option premiums, however, I reduced my exposure to the premiums by shortening my tenor and also reducing the nominal trade size.
I was watching the screen and at about lunch time, I noticed the pound starting to slide. I quickly looked at my charts and I noticed that the stochastics were turning down, the ichimoku; tenkan had just the kinjun from the top down, and the price trend broke through the cloud.
I confirmed it at both the 15 minute and 5 minute time frame……………looked really good, so I short the GBPUSD at 1.6230 with a SL at 1.6250. The pound started a slow grind downwards and at about 330pm, an hour before the MPC and BOE minutes at 430pm, I decided to square the position and bought back the pound at 1.6155 for a 75bps pop!
Who really knows what the non farm payroll number is going to be; could be stronger or weaker.
I did three spot trades; the first one was going LONG EURUSD, going SHORT GBPUSD, and then going SHORT USDJPY. All three trades were placed on a stop if offered or bid.
In the case of the GBPUSD, I was hedging against a possible stronger non farm payroll number, so I SHORT GBPUSD stop if bid at 1.6100 when the spot was at 1.6131.
As we all know, when the weaker non farm payroll number came out at 148K versus expectations of 180K, the USD got clobbered and the GBPUSD when up to 1.6200.
Markets were just see-sawing back and forth, when I was the opportunity on Friday night, actually it was already Saturday morning at about 1:30am Singapore time.
I saw on the technicals moving back up from the trough; fast and slow stochastics cutting up from below, Chikou flattening out, so I took on my gut feel and sold the option at 1.5933.
Remember our breakeven was 1.5990, that gave me a trading profit of 57bps. You will recall that I wrote an update on October 9th and made the decision to hang on to this option trade alittle longer. Well, the Ichimoku is telling me that this trade has run its course. The payout wasn’t great, a meagre 0.45:1. Let’s not forget that this option cost me 125bps in premiums.
The lesson learnt here is that the markets are getting tougher and more dangerous! As traders, we are taking on more risks, in this case, paying more for options and the potential payout is not commensurate to the risk we are taking. Why? Volatility is high.
When I woke up on Saturday morning and checked what happened in the NY afternoon session and closing……….Wow! By closing of the NY session, the Tenkan has firmly cut up the Kinjun from below, it broke through the cloud from below and also went above the 200 day MA. So, in hindsight it was good that my gut feel prompted me to take profit on the option…………..whew!
You will recall that I bought another put option on the GBPUSD at the strike of 1.6115, with a breakeven of 1.5990 and premium cost of 125bps.
I really thought we were going to lose on this option as well. Lady Luck has decided to show her beauty, the GBPUSD and the EURUSD has did an about turn southwards starting today and the current spot is now at 1.5938, so I am 52bps in the money.
Should I take profit now or wait it out alittle longer? The political turmoil in the US surrounding the coming debt ceiling deadline on October 17th is so so unpredictable. Should I just take profit, since, it is on the table or wait?
The 4H chart shows that the Tenkan cutting down on the Kijun, and we are now below the cloud. The cloud is declining and so the is Chkou. We are near the 200 day MA of 1.5873.
Decisions…………decisions………….decisions………….however, based on the technical analysis alone, I will stay with the option for alittle longer, but I am going to be following the news like a ‘hawk’.
Tonight’s FOMC minutes at 2am Singapore time and 2pm NY time, may take away support from the USD, as the Fed didn’t taper like what the markets were expecting in the last meeting. However, if the minutes shows that the Fed is sensitized to the economy and wants to make sure it’s growing from strength to strength which is isn’t right now, then, it should be positive USD.
Well, September 27th rolled around and the GBP was up up up, moving from 1.6030 to 1.6100.
You will recall that I bought a put option at the strike of 1.5915 and a breakeven of 1.5826. The premium was 88bps.
I let the option lapse and I made a trading loss of 88bps, which is the cost of the option.
I felt that the majors thrashing of the USD was overdone post FOMC and when the Ichimoku; Tenkan cut down on the Kinjun from the top at 1.6115, I decided to Buy a Put Option for 1 month at the money spot; premium of 125bps, breakeven at 1.5990.
I am born in the Year of the Tiger.
The Panthenon Investment Group 