Market: Euro, 6E, 6E_f
Buy or Sell?: Seasonals, technicals and fundamentals are mixed…we like selling option strangles in the Euro.
Range: The 2013 high is near $1.37 and a gap near $1.33 should keep prices contained in the near term. If stops above $1.37 are run, we doubt psychological resistance of $1.40 will be penetrated.
Sell December Euro strangles
Well, when the government shut down so did many of the markets (namely Treasuries and currencies). Nonetheless, now that the debt ceiling deal has finally been approved currency traders are unwinding some of the flight to quality bets.
We also seem to be experiencing some fresh bulls in currencies such as the Euro in light of the U.S. shenanigans. In other words, there is an anti-U.S. dollar trade going on. However, we suspect that today’s knee jerk reaction will soon be met with resistance….after all, the grass isn’t necessarily greener in Europe. Accordingly, we feel like the rally will be limited but any selling should be supported by year-end buying as multi-nationals prepare for 2014.
We like the idea of selling strangles in the Euro using the December $1.40 call option and the $1.33 put. this gives us approximately 300 ticks in either direction and leaves us with a slightly bearish bias. You should be able to collect about 70 ticks or $875 per strangle. The trade makes something if prices are between $1.4070 and $1.3230 at expiration but the max profit of $875 before transaction costs occurs if the futures price is between $1.4000 and $1.3300 (see chart above).
Keep in mind that this premium collection trade will help to hedge the time value erosion on our U.S. dollar position.