If you are market observer or participant, you aren’t going to see too many weeks like the one we just had. After the vote in the UK to leave the European Union caught many off guard, the markets started a wild ride of historic levels. The Pound dropped to 30 year lows, as it plunged almost 12% in one trading session. Other markets had similar moves, and had some continued follow through earlier this week. Wednesday’s trading saw some recovery across the board, and perhaps a bit of stability.
The question last week was would the UK stay or leave the EU. We have an answer, but it comes with many more questions. The exit process itself could take up to two years to complete. What happens to the EU, and the Euro during that time? Will other countries follow the UK out the door? If more leave will there still be a European Union? Someone might be able to predict which of those events might happen, but I don’t think anyone knows what effect they would have on the markets.
I’m looking for continued movement in the British Pound, with pressure to the downside continuing. I think the Pound will make moves up from the recent lows, but they will be short lived. I am looking at a long term downside play, buying the December British Pound 120 put at 50 points ($312.50) or better. This is a sit back and hold em’ trade, trying to take advantage of a weakening Pound against the US Dollar. Risk is limited to the cost of entry plus fees and commissions. Expiration is not until December 9th, giving us time for the market to make its move. My initial ext point is at 150 points. If the Pound rebounds and moves higher, I would try to limit a loss to 30 points.
For those interested Walsh Trading is holding our weekly grain webinar Thursday June 30th 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.,
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.
