LADDERING FXE SHORT VERTS ON RISK OFF EVENTS/BOUNCES
Several weeks ago, I began to set up laddered short call verts in FXE (the EURUSD proxy). My original idea was to set up short call verts at 112/115 at varying expiration from here through December or January based upon the notion that the Fed was poised to tighten and, now, it appears, based upon the possibility that the ECB may initiate additional easing.
As I may have pointed out in that earlier post, FXE is not ideal for this because of the nature of the expiries offered: greater than 45 DTE, you're generally left with only quarterly expiries. Generally, if you're going to ladder, you want to ladder at the beginning of each month for the next three monthly expiries out, so I had to set up a September rung and a December rung and then wait for an opportunity to fill in an October rung (and potentially a January rung at the same time) when it became available.
Then, however, we saw a resort to the Euro as a risk-off safe haven on US and European equities weakness, somewhat of a new twist in the general pattern of risk-off flight to safe haven currencies; the go-to has generally been the Yen (concern over Asian market weakness may have muted investor desire to flee there).
In light of the fact that resort to the Euro as a safe haven currency may not be transitory, I'm modifying my laddering to take advantage of bounces in the Euro (whether the result of risk-off or Greenback weakness) and will set up future short call verts largely at the 1 SD instead of at 112/115 (even though I think that is still a pretty good resistance level).
Adding right here is, unfortunately, not ideal; I'll look for bounces in FXE back toward 112.50.
As I may have pointed out in that earlier post, FXE is not ideal for this because of the nature of the expiries offered: greater than 45 DTE, you're generally left with only quarterly expiries. Generally, if you're going to ladder, you want to ladder at the beginning of each month for the next three monthly expiries out, so I had to set up a September rung and a December rung and then wait for an opportunity to fill in an October rung (and potentially a January rung at the same time) when it became available.
Then, however, we saw a resort to the Euro as a risk-off safe haven on US and European equities weakness, somewhat of a new twist in the general pattern of risk-off flight to safe haven currencies; the go-to has generally been the Yen (concern over Asian market weakness may have muted investor desire to flee there).
In light of the fact that resort to the Euro as a safe haven currency may not be transitory, I'm modifying my laddering to take advantage of bounces in the Euro (whether the result of risk-off or Greenback weakness) and will set up future short call verts largely at the 1 SD instead of at 112/115 (even though I think that is still a pretty good resistance level).
Adding right here is, unfortunately, not ideal; I'll look for bounces in FXE back toward 112.50.
