Friday, January 29, 2010

Bookkeeping: Long US Dollar (UUP) with ETF and Calls

Currency is generally "slow money" not "fast money" but I love the technicals on the dollar here.

I am going to go, for the second time in the past few months, long the dollar - this time via both UUP ETF and UUP Calls.  I am putting 3% into the ETF, and 4% into the calls - we will use March 23's (UUPCW) - in the real world I'd most likely be using March 24's (UUPCY) as they will provide much more upside as a % gain, but the volume in the 23's is much higher so it's easier for me to move in and out of, in the simulator I use to track my moves (which does not work well in lower volume instruments).  The 23's are trading in the low .50s while the 24s are around 14 cents.  Which means if UUP breaks over $24 those 24 calls will explode higher in value, while the 23s will move up, but more of a 1:1 relationship... I am going to mark the price point of both here in the post so at the end of the trade I can show you what we would really have gained (or lost) in a real world environment when I sell the calls.

We had a very successful long trade on the dollar from thanksgiving (just before Dubai) - that lasted about 5 weeks.  Now we are breaking out over and above that level, and a "double top" is being cleared.  If this were a stock I'd be buying hand over first, so I shall consider it the same.

For purposes of tracking I will place these instruments in the "short" bin simply because of the inverse relationship we've seen for 2 years between the dollar and the markets.  It did not use to be this way.  But I suppose much like I did in November, this is a "low risk" way to hedge against the market due to the recent relationship.  Maybe Greece is our new Dubai.  Ah yes, don't forget Spain, Portugal, Italy, Ireland... and Japan, UK, and the US.  All in good time - the world is full of irresponsible governments; the piper is waiting to be paid in the next decade.  (I only wonder if people will still run into the US dollar for "safety" as the US flails around like Greece in about 10-12 years? That would be the greatest irony of all time)

This is the chart of the dollar with 1 DAY DELAY - it is now up to $79.25... so the set up is even better than the chart below looks.

Here is the ETF that reflects the dollar - UUP.  I am not worried about the gap because you should chart the underlying product (the US dollar) not the ETF...

Long UUP ETF and calls in fund; no personal position

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