With the UK- EU vote pending, the questions remain on what will happen. No matter which way the vote goes, I don’t think anyone knows what the end result will be for the UK or the EU. As the debate continues,   my thoughts turn to one the UK’s finest exports, The Clash.

“Should I stay or should I go now?
Should I stay or should I go now?
If I go there will be trouble
An’ if I stay it will be double
So come on and let me know”

The guessing game will continue until all the votes are cast, but what happens in both the UK and remaining EU member countries could take longer. If the vote is to leave, the there is a near two year exit process. The big question for the EU will be if there is a Brexit can they keep things together and make sure there is not a domino effect. If someone decides to follow the UK out the door, that could be the beginning of the end for the European Union.

These types of events are always hard to trade around. The volatility seen the last two weeks has caused the currency markets to move like a swirling wind. The group thinking last week was that the UK was leaving. Sunday night that group must have changed its mind, because the markets from Monday on are telling us the UK is going to stay.

Without any clear direction from either result, I am looking for a directional move in currencies. Leading up to the vote, the Japanese Yen has been a bit of a “flight to quality” play. In a short term roll of the dice play I am going to buy a strangle in the Japanese Yen. I am trying to buy the June Week 4 9300 put with the 9700 call at 20 points (250.00) or better. These options expire on the close on Friday June 24th, the day after the vote in the UK. Risk is defined to the cost of entry plus fees and commissions. I am setting an initial target exit at 50 points. If there is a limited movement in the Yen, I would try to limit a loss to 10 points.

 

For those interested Walsh Trading is holding our weekly grain webinar Thursday June 23rd 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.