Another week of currencies at play …

Last week, it was the Swiss National Bank giving the markets a kick. This week, rumors about ECB action and Super Mario’s words have everyone’s attention. Thursday morning, the ECB gave us two pieces of information. They will leave the interest rate unchanged, and they will begin a QE (quantitative easing) program similar to what just finished up in the United States.

Wednesday gave us a peek (or was it a leak) to what the ECB’s asset purchase plan was going to look like. Rumors of 50 billion Euros a month in bond buying sent the markets flying. Thursday Mario Draghi gave us the details of the program which will start in March of this year. The ECB will spend 60 billion Euros per month in an effort to fight deflation.

A weaker Euro usually leads to a stronger dollar. The domino effect will spill over into other currencies, also showing weakness against the U.S. Dollar.

The Trade

Looking for a market with a bit less volatility, my eyes are on the Canadian Dollar.

  • I like a bearish play buying the March 79-77 put spread at 30 points ($300.00) or better.
  • Full value of the spread at expiration on March 6th is $2000.00.
  • Our risk is limited to the cost of entry plus fees and commissions.
  • I am setting an early target exit of 75 points.
  • If you are able to trade more than one contract, I would look to scale out in 20 point increments.

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RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.