CHF Signal - June 3, 2013
Recently shares of the Swiss Franc Trust ETF went into oversold territory selling as low as $98.80 per share giving the Swiss Franc Trust a RSI reading of 28.5, compared to the S&P 500 which is currently at 63.6. if you were a bullish investor you could view the 28.5 reading as a heavy selling period that is draining itself, creating a great entry point for the buying side.
There is a major correlation with the yen and the Swiss franc based on a level of percent change. The recent 0.34 changes may not seem like a major change, but it is the highest it has been since early 2012. More recently though, the correlation is now even stronger with a 0.79. (Click here to see chart)
According to Marc Chandler, some of the social and tradition media is telling many that the rising policy uncertainty is creating a demand for safe haven currencies. He says to stay skeptical and try to create a distinction between buying a currency to go long, and buying a currency to cover a short. He believes that the yen and Swiss franc are both experiencing short covering.
The gross short yen position is at a five-year high, while the Swiss franc has doubled recently to its highest level since last July. Also it should be known that foreign investors have purchased nearly $80 of Japanese shares so far this year, often hedging the currency. At the end of May, so far, Japanese investors sold about $93 bin of stocks and bonds so far this year. These flows are not graspable in the simplest description of risk-on and risk-off or safe haven demand.
I want to get Short the FXF, but I always want to define my risk vs reward set-up.
My Trade: Selling the FXF July 105-106 Bear Call Spread for $.40
Risk: $60 per 1 lot
Reward: $40 per 1 lot
I like this trade, because I can make money if the stock is down, flat, or up less than 1%
Greeks of this Trade: