Back to Canada Eh After +46% September Profit Play
New Trade Alert for (FXC)
CurrencyShares Canadian Dollar
Buy June FXC $75.00 Call @$3.50 or less
Risk Rating: 2 (1 = lowest 5 = highest)
Oh Canada Currency
Oil’s good…. with a breakout above $55 to multi year highs for the front month futures contract that gets the most attention.
One year action between $45 and $55 targets a move to $65 another 20% above.
Oil was slammed from $120 to $25 in the last decade damaging the resource centered Canadian economy.
The FXC Canadian Dollar exchange traded fund saw its own slide from $100+ to under $70 with the Black Gold decline.
FCX halfway recovery mark target stands at $86.
Trade has tracked from $72 to $82 in the last year with the recent profit taking pullback to the $77 midpoint support.
The June option has over seven months for bullish development.
Buying actual shares is expensive and uses funds long-term in the stock play that could be put to better use. An In-The-Money Call option gives you the right to be long the ETF/shares from a lower strike price and costs much less than the stock itself.
The Options Way: Unlimited Upside Potential with Limited Risk.
An FXC long call option can provide the staying power in a potential larger trend extension. More importantly, the maximum risk is the premium paid.
One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares — that’s the power of leverage.
Choosing an option can sometimes be a daunting task with all of the choices and expiration months. Simply put, traders want to buy a high probability option that has enough time to be right.
The option strike price is the level at which you have the right to buy without any obligation to do so. In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for gain or loss.
There are two rules options traders need to follow to be successful.
Rule One: Choose an option with 70%-plus probability. The Delta is a measurement of how well the option reacts to movement in the underlying security. It is also important to buy options that payoff from only a modest price move.
There is no need to ONLY make money on the all but infrequent long shot price explosions.
Good Options can profit from only modest directional moves.
Any trade has a fifty/fifty chance of success. Buying options ITM options increase that probability. That Delta also approximates the odds that the option will be In The Money at expiration.
Buying better options is more expensive, but they are worth it — the chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.
With FXC trading at $77.25, for example, an In The Money $75 strike option currently has $2.25 in real or intrinsic value. The remainder of any premium is the time value of the option.
Rule Two: Buy more time until expiration than you may need — at least three to six months for the trade to develop. Time is an investor’s greatest asset when you have completely limited the exposure risks.
Traders often buy too little time for the trade to develop. Nothing is more frustrating than being right but only after the option has expired premature to the market move.
Trade Setup: I recommend the June FXC $75 Call at $3.50 or less. A close in below $75 on a weekly basis would trigger an exit.
An option play also has staying power with the ability to ride through Ups and Downs that would force most stock traders out of the position.
Notice the $75 strike price is a discounted level not seen since June.
The option also behaves much like the underlying stock with a much less money tied up in the investment. The Delta is 78% for the $75 strike price.
June has over seven months for development.
The maximum loss is limited to the $350 or less paid per option contract. The upside, on the other hand, is unlimited.
The FXC option trade break even is $78.50 at expiration ($75 strike plus $3.50 or less option premium). That is a little more than a dollar above FXC’s current price.
A recovery back into the recent $82 high would double our option investment. The higher target is at $87 on a full “V” recovery.
Essentially, you are long from $75 with over seven months of time for ANY bullish development with absolutely limited risk to the $350 paid for the option.