Options Play: Strangle The Euro To Collect Premium

The Euro has been in search of a sweet spot over recent weeks. The Brexit vote lies down the road (June 23rd) a bit, but it is still on everyone’s mind. The ECB left rates alone (as expected) at their most recent meeting and Mario Draghi has spent recent days defending ECB policy. “Our policy is working, but we must be patient. “ Mr. Draghi also hinted that an interest rate hike “would be bad for the economy and we would unleash deflation, unemployment and recession.”

Draghi and the ECB find themselves in a bit of a pickle (particularly with the Germans), as their actions don’t seem to have the intended result.  We have routinely seen the Euro rally when presented with interest rate cuts and bond buying sprees.  It’s almost as if the market says is that all you got?

I’m looking for the June Currency to continue to be range bound going into the vote on June 23rd. I am looking to take advantage of the market staying within a range and sell a strangle.  I like selling the June Euro Currency 116/110 strangle at 45 points ($562.50) or better. We are collecting premium and looking for the market to trade between 110 and 116 through expiration on June 3rd. By selling the 110 put at the same time as selling the 116 call, it gives us the ability to play a directional move without choosing the direction. Please check margin requirements and make sure the trade is suitable for you. I am setting an initial target exit on the strangle at 10 points. If the trade moves against us, I would look to limit a loss to 20 points.

For those interested Walsh Trading is holding our weekly grain webinar Thursday April 28th at 3:00 PM Central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.

John Weyer

Director of Commercial Hedging

Walsh Trading Inc.,

jweyer@walshtrading.com

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.

 

 

 

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