Glass
26th September 2013, 07:19 PM
Dont know that I comprehend any of this...yet. It says the RBA will meet next week. I thougth they only met a couple times a year. Perhaps its reported more nowadays.
We've always been fond of identifying and positioning for macro trends. Getting on board a bull market and riding that sucker for the majority of the move is more than common sense, it's profitable and as a capitalist it's our honour-bound duty to participate.
One currency that we've spoken about in these pages previously is the Australian dollar, or AUD for short. For a host of reasons it's one of the most overvalued of the fiat currencies in our humble opinion. Anyone who has been to Australia in the last few years knows of what we speak!
Although still trading too high, it has been coming back down to earth since it peaked at 1.12 to the USD in May. That downtrend was recently broken by our friend, Ben Bernanke.
First the Fed was tapering, then it wasn't tapering. By now we're all getting used to the "smoke and mirrors" economy. It's a trader's dream...the volatility that is. Suffice it to say the AUD has rallied on the new “non tapering” news. This allows us the opportunity to reposition.
Identifying an opportunity is one thing, but executing on the idea prudently and correctly, and managing one's risk is another.
yadayada, intro Brad who's the Guru with the Play
Macro View: Bearish outlook on AUD
Timeframe: short term (2 months)
Thesis: The AUD is in a primary down trend. The move from 89 to 95 over the last month has been sufficient to work off an oversold position, with many poorly-financed, leveraged bearish positions having been rooted out of the market. With this in mind, the AUD is now positioned to resume the downward trend
Application: Create a bear put (vertical) spread on the FXA (Aussie dollar ETF). The bear put spread (http://www.optionseducation.org/strategies_advanced_concepts/strategies/bear_put_spread.html) is necessary due to the relatively high level of implied volatility on the options. The spread offsets this volatility. If volatility was low then a plain vanilla put would be appropriate.
http://capitalistexploits.at/wp-content/uploads/2013/09/FXA.png
Trade: Buy 1 Nov '13 94 strike put, sell 1 Nov '13 89 strike put @ 1.0. )Always buy and sell an equal number of the option in this strategy).
Cost & Max loss = $100
Maximum payoff = $400, or 400%
Breakeven = 93 (a premium of 1.6%)
Strategy: Hold until expiry, 18th October 2013
Risk Allocation: 1% of trading capital
All the FXA (AUD) needs to do is to fall by 1.6% (to the 93 level) over the next two months and the trade will at least break even.
A 100% return will be achieved if the FXA closes @ 92 at expiry. A maximum profit will be achieved (400%) if FXA closes at or below 0.89 @ expiry.
Below is how the trade would appear on the Interactive Brokers web platform (other platforms may or may not be similar):
http://capitalistexploits.at/wp-content/uploads/2013/09/IB.jpg
The AUD's recent gains are simply working off an oversold position, and Brad believes this trend is reversing, as do we, and the macro trend will soon reassert itself. As such, this is an opportune time to position a trade such as the one Brad suggests.
The RBA (Australia's reserve bank) will meet next week, and we believe it's highly unlikely they cut rates further. They are already at 2.5%, so their room to move is not great.
ZH article (http://www.zerohedge.com/contributed/2013-09-26/taper-or-not-aussie-overvalued-%E2%80%93-how-play-it)
We've always been fond of identifying and positioning for macro trends. Getting on board a bull market and riding that sucker for the majority of the move is more than common sense, it's profitable and as a capitalist it's our honour-bound duty to participate.
One currency that we've spoken about in these pages previously is the Australian dollar, or AUD for short. For a host of reasons it's one of the most overvalued of the fiat currencies in our humble opinion. Anyone who has been to Australia in the last few years knows of what we speak!
Although still trading too high, it has been coming back down to earth since it peaked at 1.12 to the USD in May. That downtrend was recently broken by our friend, Ben Bernanke.
First the Fed was tapering, then it wasn't tapering. By now we're all getting used to the "smoke and mirrors" economy. It's a trader's dream...the volatility that is. Suffice it to say the AUD has rallied on the new “non tapering” news. This allows us the opportunity to reposition.
Identifying an opportunity is one thing, but executing on the idea prudently and correctly, and managing one's risk is another.
yadayada, intro Brad who's the Guru with the Play
Macro View: Bearish outlook on AUD
Timeframe: short term (2 months)
Thesis: The AUD is in a primary down trend. The move from 89 to 95 over the last month has been sufficient to work off an oversold position, with many poorly-financed, leveraged bearish positions having been rooted out of the market. With this in mind, the AUD is now positioned to resume the downward trend
Application: Create a bear put (vertical) spread on the FXA (Aussie dollar ETF). The bear put spread (http://www.optionseducation.org/strategies_advanced_concepts/strategies/bear_put_spread.html) is necessary due to the relatively high level of implied volatility on the options. The spread offsets this volatility. If volatility was low then a plain vanilla put would be appropriate.
http://capitalistexploits.at/wp-content/uploads/2013/09/FXA.png
Trade: Buy 1 Nov '13 94 strike put, sell 1 Nov '13 89 strike put @ 1.0. )Always buy and sell an equal number of the option in this strategy).
Cost & Max loss = $100
Maximum payoff = $400, or 400%
Breakeven = 93 (a premium of 1.6%)
Strategy: Hold until expiry, 18th October 2013
Risk Allocation: 1% of trading capital
All the FXA (AUD) needs to do is to fall by 1.6% (to the 93 level) over the next two months and the trade will at least break even.
A 100% return will be achieved if the FXA closes @ 92 at expiry. A maximum profit will be achieved (400%) if FXA closes at or below 0.89 @ expiry.
Below is how the trade would appear on the Interactive Brokers web platform (other platforms may or may not be similar):
http://capitalistexploits.at/wp-content/uploads/2013/09/IB.jpg
The AUD's recent gains are simply working off an oversold position, and Brad believes this trend is reversing, as do we, and the macro trend will soon reassert itself. As such, this is an opportune time to position a trade such as the one Brad suggests.
The RBA (Australia's reserve bank) will meet next week, and we believe it's highly unlikely they cut rates further. They are already at 2.5%, so their room to move is not great.
ZH article (http://www.zerohedge.com/contributed/2013-09-26/taper-or-not-aussie-overvalued-%E2%80%93-how-play-it)