RBA minutes came out this morning somewhat dovish and uncertain about whether the next rate decision will be up or down or flat. AUD took a hit!
I decided to buy a one month call option expiring on July 20th with the following details: –
Spot; 0.7375
Premium; 0.70
Breakeven; 0.7445
Let’s see……………..
As expected, RBA kept interest rates the same and the statement was positive and supportive of the labour market and economic conditions in the country.
This should be supportive for the AUDUSD, maybe, my call option will be fine.
Let’s see.
Admittedly, I was alittle nervous going into the RBA rate decision yesterday. However, AUDUSD was hovering around 0.7485 going into the RBA session.
It was quite certain that RBA wouldn’t lower or raise interest rates. Too much noise in the market about a possible rate cut and then again with inflation and the ‘bubble’ real estate market, the only way is to raise interest rates.
Anyway, I wasn’t so bothered about it, I was more concern about the RBA statement and what it could imply???
Thankfully, it was a neutral statement, one without ‘teeth’. AUDUSD responded positively and powered northwards.
I decided to square the other half of my AUDUSD call option at 0.7550 for a trading profit of 142bps!!!
Thank you RBA, thank you Lowe!
I hope all of us was there at 12:30pm today for RBA’s rate decision?
This meeting of RBA has been getting a lot of noise in the media since the past three weeks.
I decided to buy a AUDUSD Put Option with the following details: –
Strike; 0.7696, Premium; 34bps, Breakeven; 0.7662, expiry 10am NY 4 May
As it turned out, the RBA decided to cut interest rates by 0.25% to 1.75%. As expected market reacted selling the AUD down aggressively.
Within 15 minutes, I decided to sell the option at 0.7563, locking in trading profits of 99bps!
Thank you RBA.
Trust all of you also managed to capture this opportunity……….(“,).
More drama later into the week…………
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.
Coming into the RBA rate decision, the media was somewhat noisy with the great majority believing that the RBA will not cut rates. Then again, there are extremist who believe that the RBA likes to catch the market off guard. The RBA dropped rates twice in 2015 catching the market by surprise. Then again, somehow, I don’t have a whole lot of confidence in this event, however, as a trader we also need to be there.
Would this have been the case as well?
Instead of my usual straddle, I decided to just place a Stop if Offered on the downside with the following details: –
AUDUSD – 0.7150 with spot at 0.7172 and SL at 0.7170
As it turned out, the market was wild!!!!!!!! RBA kept rates on hold and said that it will continue to maintain an accommodative policy.
Within 15 seconds, the AUD gapped down to 0.7110 and then gapped up to 0.7205 and settled at 0.7163.
So my trade got triggered at 0.7150 and then got stopped out at 0.7170.
It’s 45 minutes later now at 12:15pm and the AUD is at 0.7204.
In hindsight, it was a fortunate thing that I only did one leg and not the full straddle otherwise I would have been triggered and stopped out on both trades!!!
So the moral of the story is? Nothing is guaranteed and nothing is for sure, even the best strategy can be whacked by the market. What is important is discipline and risk management; manage your trade size and please please place stop losses.
Ok for this trade I made a trading loss of 20bps, but if I had not placed a stop loss, I would not be staring at a 50bps loss.
Later this week it’s BOE, what can we expect?
Majority of the street expected the RBA to cut rates the last time and it didn’t, this time around, it’s expecting RBA to cut rates by 0.25% to 2%.
I decided to put a spread trade: –
AUDUSD – Stop if Bid at 0-.7890, Spot at 0.7852, Stop if Offered at 0.7820. SLs at 0.7870 and 0.7830
As it turned out, the RBA did cut interest rates by 0.25% to 2%, but what was more surprising was the chopiness in the spot rate.
I was triggered on both trades and also stopped out on both trades for a trading loss of 44bps. Aarrggghhhh!
Oh well, S _ _ _ happens………..hahahahahahahasha.
70% of the banking community was expecting RBA to cut rates today, 80% of the economists were expecting RBA to hold rates.
What do I think? I don’t know, however, what I do know is that the media has been playing up the RBA rate decision since last week, so market sentiment is high, which means implicit volatility will be high.
At about 12:20pm, when AUDUSD spot was hovering around 0.7600, I decided to place my order;
Long, Stop if Bid at 0.7630 with SL at 0.7600
Short, Stop if Offered at 0.7565 with SL at 0.7600
What happened?!
RBA surprised the market by holding rates!
AUDUSD shot up to a high of 0.7710 at about 1.21pm.
I of course, decided to square off half the trade at 0.7685 for a trading profit of 55bps.
Thinking that there might be some more ‘legs’ in the AUD, I decided to write a call option at 0.7690 expiring tomorrow and I received premiums of 33bps. My breakeven is 0.7657.
I placed a sell order at 0.7670 and it was hit, so I locked in profits of 40bps + 33bps = 73bps.
Now at 9:25pm Singapore time, the AUDUSD has corrected back down to 0.7647.
The only exposure left now is the open call option which I sold at 0.7690. I have placed a Long, Stop if Bid at 0.7690.
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.
The carnage on the USD started last Thursday and the three currencies that battered the USD the most was the GBP, EUR and the AUD.
The question is whether it was warranted or not, or was it simply a case of fund flows? Or did the market move against the USD because the BOE, ECB and RBA moved from an accommodating stance to a neutral stance? Is that enough to move the market so significantly? I do not believe so.
Personally, I expected the other central banks to move to a neutral stance, given that the Federal Reserve has already begun cutting back QE by two tranches of $10Bn each from $85Bn to now $65Bn.
Is there an opportunity for the USD to take back some ground from the majors? Yes, I believe so, and it has started today with the GBP giving back about 60bps so far. I should have captured this opportunity since I felt so strongly about it.
Unfortunately, I was taken away to focus on my private equity business in a company I invested that is involved in the tocotrienol business.
I am born in the Year of the Tiger.
The Panthenon Investment Group 