Monday, June 19, 2006

Buying back GBP calls, using the profits to buy more puts...

Bought back the £5/point of Jun 30th GBP/USD 1.8600 Call that I'd sold
back on June 6th at 170.1, for 42.9, and bought a 1.7950 July 14th Put
for 29.3. ie. I made £636 from the call, and spent £644.60 on more puts
(I already have a 1.8200 Put expiring Jun 30th in £23/tick).

And yes I still have an outright short in cable of £13/tick. GBP is
going to get crushed...the rate differential between the UK and the US
continues to increase in the US's favour, and this is what has held GBP
up for years. Just check out the 20yr chart between GBP/USD and the rate
difference between the currencies (I use the first LIBOR contract, but
you could take base rates). It is truly amazing how far this has
diverged over the last year...GBP should be around 1.40 if it were
following the rate difference as it always have. I just have to be
involved in this one.

Also have some concern around my '07 EuroDollar contracts that I put,
about 30 ticks out the money as Bonkers Ben decides to hike rates
despite it being 100% unnecessary. It will just kill the economy more. I
will look to buy more '07 Eurodollars, maybe June or September, as the
FED will be well into their cutting cycle then. Also if you trade
Treasuries out there, surely you gotta be putting on 2s10s
flatteners/inversion trades!! Think 2s are about 5bps wide to 10s just
now (5.20% vs 5.15%)...that trend will only continue.

And I remain short Oil...a "vigilent" FED taking down growth, and a
China who is going to let its currency float more freely, will bring
down demand in a market where OPEC and others are pumping out the black
stuff as fast as they can.

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