Shares fell by 0.9% over 14 days, or a -24% annual rate. The options position produced an 18.7% yield on debit for a +2,770% annual rate.
Updated 6/21/2016 with a second attempt to get a fill.
The Guggenheim CurrencyShares Euro Trust (FXE), an exchange traded fund, tracks the price of the Euro currency. I'm looking at it as a possible play on Thursday's vote on whether the United Kingdom should exit the European Union.
[Economy of the European Union in Wikipedia]
FXE has AUG series option, my preference at this point, but they have no liquidity so I shall use the JUL series of options, which trades for the last time 25 days hence, on July 25.
Implied volatility stands at 12%, which is 7/10ths of the VIX, a measure of volatility of the S&P 500 index. FXE’s volatility stands in the 65th percentile of its most recent range, The price used for analysis was $109.70.
|Week||SD1 68.2%||SD2 95%||Earns|
by Ruchir Sharma
Polling and bookmaking on Brexit has been quite volatility. I shall cautiously go for a direction-neutral strategy.
short the $107 puts and long the $106 puts,
sold for a credit and expiring July 16.
Probability of expiring out-of-the-money
The premium is $0.33, which is 36% of the width of the position’s wings. The stock at the time of entry was priced at $109.75
The risk/reward ratio is 2:1.
The zone of profit in the proposed trade covers a $2.50 move either way.
Decision for My Account
I have opened a position on FXE as described above.
-- Tim Bovee, Portland, Oregon, June 21, 2016
Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.
Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading.
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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
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