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
Breakeven: $105.40

I like this trade, because I can make money if the stock is down, flat, or up less than 1%

Greeks of this Trade:
Delta: Short
Gamma: Short
Theta: Long
Vega: Short

Andrew Keene spent 10 years as an independent equity options trader on the Chicago Board of Options Exchange, during which he spent the majority of his time as a market-maker for over 125 stocks. Andrew currently trades futures, currencies and commodities. When he's not trading, Andrew appears on top business television shows including CNBC's Squawk on the Street, Street Smart on Bloomberg TV and First Business, a show that is syndicated across the United States. Andrew graduated from the University of Illinois with a degree in Finance with a concentration in Accountancy.