The preface to the two questions below is quite fascinating, as the writer clearly has thought out his “hedging” strategy for his euro trade. I like that.
As to the questions … The answers are difficult when I am committed to not giving specific trading/investment advice, however …
If you held Swiss francs and made some money in euros, since the euro/Swiss rate has weakened considerably, how can you lock in those euro profits without selling your Swiss francs either spot or forward. I guess buying a call option on an asset/investment strongly correlated to the euro currency would be an idea, so if the euro went up and you were in the money, you could exercise the option before maturity, and your only loss is the premium cost of the option if you could not exercise. So the question is, then, at what strike price versus premium cost. Do you know of an investment asset strongly correlated to the euro currency value that one could do this with … or any other better ideas?
The first question (strike price) I will leave to you and any reader out there who wishes to chime in. As well, I will ask the readers out there for their opinions on the second question (see bold above). Just so everyone understands the topic, please read the following explanation for clarity.
Currencies and currency pairs such as the euro dollar, correlate against a variety of commodities, markets and economic indicators, and for the trader or investor, it is vital that you understand these relationships for two reasons. First, as an investor in other assets, whether these are commodities such as gold or oil, or market assets such as stocks, bonds and commodities, the strength or weakness of a currency can dictate the likely performance of the assets. Secondly, if two assets or currencies correlate, they offer ideal opportunities for hedging risk.
My contribution to you is this – look to Brazil. Check out the Brazilian ETF, EWZ. Put the 3-month euro chart up and compare that to the 3-month EWZ chart. I believe you will find it quite fascinating.
Any other ideas out there for this intelligent fellow?
Trade in the day; invest in your life
