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Quick Update on the Put Options…………

Ok, it looks like my call was wrong.

Profited from the GBP because the put level was on the higher range.  In hindsight, the levels of the AUD, EUR and JPY were all kind of the mid range between the high and low goal posts.

Today’s Australia CPI was negative, indicating that the Aussie economy has gone into deflation the past quarter. This was good for my spot trade which I will share in another write up and makes my put option look alittle better but honestly, the I doubt the AUD level will be hit before the end of this month, only two more days.

Looks like I may be throwing away the options paid for the AUD, JPY and the EUR, then again, if I did a mark to market, then, I lost less doing the options then continuing the hold say an ‘open’ spot position, which would have necessitated a top up by now.

So, as I have always shared with all of you, if you have a fundamental view of a strategic view, then, play the potential opportunity by way of an option, rather than doing a spot transaction.

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.

 

6 February @ Non farm payrolls!!!

Market was anticipating the much awaited non farm payroll numbers and the unemployment numbers to confirm that the U.S., is on track in its economic growth recovery.

Wednesday’s ADP number was not encouraging at 213K against forecast of 224k, however, it was mitigated by the upward revision of December’s number from 241K to 253K.  This means that there is a possibility that the non farm payroll numbers could surprise on the upside of forecast.

Market was steady at about 9:10pm Singapore time.  My hunch told me that the non farm payroll numbers would be better, so I decided to bet on my hunch.

Orders: –

1.  GBPUSD – Stop if Offered at 1.5290 when spot was at 1.5323

2. EURUSD – Stop if Bid at 1.1500 when spot was at 1.1486

3. EURUSD – Bought a put option expiring Monday, February 9 with a premium of 36bps, spot at 1.1486 an breakeven at 1.1450

4. USDJPY – Stop if Bid at 117.60 when spot was at 117.28

Of course, all of us knew what happened, the non farm payroll numbers came out at 257K busting forecast of 236K and the highest in the past 6 years.

Market sold off the GBP, EUR and the JPY in a BIG way!

At about 11:15pm, I decided to square off all the trades.

Squared off the GBPUSD at 1.5248 for a trading profit of 42bps.

Squared off the USDJPY at 118.88 for a trading profit of 128bps.

EURUSD stop if bid order was not triggered.

Sold off the put option at 1.1326 for a trading profit of 124bps.

In absolute terms, we made 294bps in totality for all 3 trades.

WHAT A NIGHT!  THANK YOU UNITED STATES OF AMERICA!

3 February @ RBA Rate Decision…………what a fantastic 5 minutes!!!

Ever since RBZ lowered its rates last month, speculation was building in the marketplace about whether the RBA would or wouldn’t lower its interest rates as well?

A week coming up to Ferbruary 3rd saw numerous analysis put out by Bloomberg, Reuters and of course, the banks.  Speculation that the RBA wouldn’t lower rates because it is concern about the high property prices and high cost of living.

Guess what?

At 11:30am, the RAB announced a 0.25% rate cut down to 2.25% from 2.50%.  Surprise surprise!!  Then again, I do not believe it was a surprise, however, none of us have a crystal ball, so he really can’t say for sure what the RBA was going to do.

However, my hunch was that it would cut rates because of mounting pressures.  So I placed a stop if offered level at 0.7765 when the spot rate was 0.7805, about 10 minutes before the announcement.  I also placed a stop if bid at 0.7835.  In addition, since my inclination was rate cut I decided to gamble with buying a put option at 0.7765 for one day with a premium of 35bps, expiring on February 4th 10am NY time.

When the announcement came out, the AUDUSD fell off the side of the cliff falling over 100bps within 5 minutes.

My stop if offered order was activated at 0.7770 and I squared the spot trade at 0.7659 for a trading profit of 106 bps.

I also decided to buy back the option and locked in another 100bps trading profit.

Thank you RBA, I secured a 206bps trading profit within 10 minutes of the announcement.

What a great start to the month of February.

EURUSD Put Option expiring Sept 5

So much talk leading up to today’s ECB rate decision and press conference.  I decided to to take a chance, it’s pure gut feel, I bought a put option for one day expiring tomorrow Sept 5 with a premium of 44bps, strike at 1.3150 and breakeven at 1.3106.

What a surprise!

The ECB announced cuts on the main interest rate and also went negative on the deposit rate, sending the Euro crashing, I just squared off the trade at 1.3026 and was happy with a 80bps profit.

This is the trade all of us have been waiting for!

Trade: Bought Gold (XAUUSD) at $1,232, SL at $1,222

Last week on December 5th, I saw an opportunity based on my charts; gold appeared to have bottomed at $1,211, though the greater volume of trades was done at about $,1,219.

Recent high on November 29th/30th was about $1,254.

I am not sure whether there is enough momentum to bring it back to the last high, it’s currently trading at $1,244.

Then again, with the budget looming in January and the debt ceiling in March, maybe, it may be worth the while to hold the position.

Hmmmm………I am up $12/-, and to sell an option till January 30th, 2014 at $1,246 will give me premiums of $30/-.  Sounds like a good trade.

Done, just executed selling a call option XAUUSD at $1,246 expiring January 30th, and receiving premiums of $30/-.

Trade Update: AUDUSD Put Option expiring 22 November 2013

I decided to square off this option prior to my leaving for my holiday.

Last Wednesday, the AUDUSD continued to fall and it went under 0.9300, I sold the option at 0.9285, you will recall that my breakeven was 0.9533, so this trade gave us a nice trading profit of 248bps.

So, while I was targeting for a 1.6:1 payout, we were fortunate and managed to secure a payout of over 2.4:1, this was a great trade.

What is ironical about the fx world is when I was away on my holiday, on November 21st and 22nd, the AUD dropped another 100bps to 0.9143………..hahahahahahahaha.

Then again, who can predict that the AUD will collapse again so near the expiry date, I certainly did not.  More importantly, I would not carry any open positions when I am away on a holiday.

Trade Update: Put Options bought expiring 1 November 2013

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.

Trade: Bought a 1 month AUDUSD Put Option expiring 22 November 2013

I looked at the AUDUSD, felt that it is too strong given, the weak economy, structural weakness, impending inflation and poor job numbers.

I decided to BUY a 1 month Put Option on the AUDUSD, strike at the money spot of 0.9640, expiring 22 November 2013, premium of 107bps and breakeven of 0.9533.

I am looking at a 1:1 payout at 0.9425 and a possible 2.24:1 payout at 0.9293.  Let’s not forget that it was barely three weeks ago that the AUD was at 0.9280.  I believe the likely outcome would be about 1.6:1.  We’ll see.

Trade Update: 1 month GBPUSD Put Option expiring 18 October 2013

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!