FXE Analysis

CurrencyShares Euro ETF (FXE)

Update 4/25/2017: FXE gapped up sharply after the French presidential election were known, a response greater than I antipated. As options expiration rapidly approached, I exited for a loss.

Shares rose by 2.26% over four days, or a +206% annual rate. The options position produced a -27.0% loss on debit for a =2,460% annual rate.


 

I am constructing an event play for the first round of the French presidential election on Sunday. There are four ideologically diverse candidates running a tight race, including the right-wing party leader Marine Le Pen.

It all leaves room for all sorts of surprises and for none at all. See more details in the excellent Wikipedia article covering the election.

If no candidate gets more than half the vote on Sunday, the election will go to a run-off between the top two candidates, on May 7. I am playing each vote separately.

I have chosen FXE as my vehicle, as I did before last  year’s Bexit vote in the U.K. It tracks the Euro and therefore the heart of the European project.

I shall use the APR28 series of weekly options, which trades for the last time seven days hence, on April 28.

Implied volatility stands at 15%, about the same as the VIX, a measure of the volatility of the S&P 500 index.

FXE’s IV stands in the 100th percentile of both its annual range and its most recent broad movement.

The price used for analysis was $103.66.

Premium: $2.14 Expire OTM  
FXE-iron fly Strike Odds Delta
Calls
Long 107.00 90.0% 10
Break-even 105.14
Short 103.00 49.3% 52
Puts
Short 103.00 50.8% 49
Break-even 100.86
Long 99.00 90.2% 9

The premium is 53% of the width of the position’s wings.

The risk/reward ratio is 0.9:1.

Decision for My Account

I have entered a position on FXE as described above. The stock at the time of entry was priced at $103.62.

By Tim Bovee, Portland, Oregon, April 21, 2017

3 thoughts on “FXE Analysis

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