In recent weeks we have seen crude oil rebound from the lows in the first quarter. On Wednesday crude posted its high for the year at 62.58, a level it hasn’t seen since December. The recent move up has many wondering if the bottom was put in March, when it broke 43.00. The recent climb in crude also comes ahead of driving season, which also has many observers speculating how much higher it will go as we approach summer in the U.S.
The move in crude oil has probably helped the Canadian Dollar (CAD) trend higher. With crude oil representing a large part of the Canadian economy and exports, the Loonie is always a bit stronger with higher oil prices. But higher prices crude oil cannot overcome all of the issues facing the Canadian economy. Just as in the U.S. (and Europe) unemployment, inflation and the interest rate issue continue to be every day challenges.
Sometimes it is tough to trade a market if the risk-reward ratio isn’t appealing. Right now I feel that Canadian Dollar may have another push to the upside, but if the U.S. Dollar shows some strength again it will put a cap on that move. With a bit of uncertainty I want to define risk, using a strangle.
I like buying the Jun Canadian Dollar 80-86 strangle at 30 points ($300.00) or better. We are trying to take advantage of a move in either direction from the current levels (near 83.00 at this writing). The trade is long premium so risk is defined to the cost of entry plus fees and commissions. I am setting an early exit target of 75 points. Expiration is on June 5th, so we have just under a month for a potential move. If the Loonie does not move away and looks like it is in a sideways market, I would look to get out at loss of 20 points.
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For those interested Walsh Trading is holding our weekly grain webinar Thursday May 7th at 3 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.
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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.
