I’m entering an options trade on FXE, here it is with some detail. Enjoy and don’t forget to ask any questions below..
Here’s the chart…
FXE entry on 5-2-17
*Please note this image was taken on 5/9/17 I actually entered the trade 6 candles back, on 5/2/17.
Analysis
I’m considering or more appropriately, was considering entering an options trade on FXE to the down side just a few days ago. If you noticed the feature image you can see, when zoomed out, this particular market has been weak for many months. What isn’t shown is this market has been weak since very early 2014. In any case, it looks like an opportunity to get in on the pull back and try to catch a continuation of the trend.
Preferred trade: Short Call Spread
Pros to the short call spread:
- Price has tried, and failed, to break above previous high.
- RSI nearing overbought territory.
- MACD showing weakening uptrend, and volume conferring the same.
- Volatility is moderately elevated.
Cons to the short call spread:
- Moving averages suggest an uptrend continuation.
- Volatility could expand.
- Entry could be too soon.
FXE appears to be a decent trading candidate. Entering this options trade to the downside with a short call spread could be a pretty good trade. That said however, I may be mistiming the entry and volatility could certainly move higher. Entering the short call spread will account for a slight margin of error.
Rationale
FXE market showing continued, long-term weakness as I suspect the downtrend will continue. I elected to enter this trade with more than 4 months to expiration, collecting a little additional premium, and allowing for more time for success. The only real hesitation I have against entering this options trade is price is showing both support and resistance at the current price level.
In addition, I expect price to trade back in line with its 50 period moving average.
Entering an Options Trade on FXE – short call spread
Bear Call Spread Entry 5-2-17
Over 128 DTE left on this trade that is currently about $2 out of the money. As shown on the FXE chart, my suspicion about entering this options trade too soon was confirmed, with a strong bullish move just after entry. However, price is staggering and I’m confident this trade can be closed for a nice profit before expiration.
Total Credit – .30 or $30
Total at Risk – .70 or $70
Targets
Over 120 days to expiration and I believe the downtrend will continue. For now, I’ll hold and wait to see if price declines from the current level. If price breaches the most recent high at 106.53, I’ll look to close upon review of losses at that time. On the other side, I’ll look to capture about 60% of the maximum $30 profit, or $18.
UPDATE
I closed this trade for a loss. At entry, a bull rally ensued that never relented and I closed the trade at a near max loss. My mistake was believing the long term down trend would continue.
Thanks for reading,
Jeff “the OptionBoxer””
