Saturday, 14 December 2013

My trades of 2014

2014 should see the occurrence of tapering (if not next week) and as such we will likely see rising rates going through next year, and as such we should see a rising USD on the back of it.


As we can see the relationship is clearly very strong and with rates only heading higher through 2014 broad USD strength is likely to come about.

As such the basis around my trades for the year are USD bullish and bearish bonds










1st trade: Short EURUSD via 6M 1.3750 put, entered at 7.6%

The timing around my USD bullishness is the hardest thing at the moment, while I'm sure we do eventually rise, it's just when, that is why I'm entered into a longer dated put in the EURUSD

Firstly, with Volatility so low in the FX world, the cost of the trade is quite cheap, and as such if we see a pick-up in IV the option value should benefit.

Furthermore, the premium payed on the trade is 290 pips and a strike of 1.3750, therefore the B/E on the trade is 1.3750 - 290 pips = 1.3460.

Ideally my targets on this trade are for the EUR to be below 1.30 in 6mo

2nd trade: Long USDCHF at market (0.8875) stop under 0.85 and a target of 0.9750

The CHF has the most to lose from the major currencies, and as I expect EURCHF to rise to 1.25/27 by year end 2014, the USDCHF should do very well with broad USD strength.


He we can see the last couple of years in USDCHF and horizontal lines represent the exit levels.

3rd Trade: Long USDSEK at market (6.57) stop under 6.25 and a target of 7

Broadly the same idea as the previous two, but with weak inflation in Sweden, it is likely that the Riksbank stays very accommodative and potentially cuts rates, so on top of USD strength, the SEK could be very weak too.


4th Trade: Short US 5's, stop under 1%, looking for a move to over 2%

This trade was entered on the 27th of Nov when the US 5's where at 1.35%, and broadly speaking with tapering, the 5's should rise substantially, to at least their previous highs. Entered via futures.



This is all being played off the idea that Monetary Policy is likely to diverge through out 2014 as shown below




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