Will it Hold?
The "risk on" trade is sprinting higher this morning as news is out that a European debt deal has been settled. This has led to strength in the euro as a sigh of relief comes through in the markets, at least for now.
But let's say that you are a little skeptical about the news, and that as we are coming into previous support, we may end up finding sellers stepping in as full details are released.
That kind of opinion is fine, but if you simply just leverage up short, you may find yourself in a very deep hole.
Options trading can help you limit your overall risk while trading directionally. One of my favorite plays in an over extended market is trading calendar spreads that are out of the money.
Consider this trade idea:
Do note, because $FXE options trade only during the day, the price of this spread may change on the open.
Here are the analytics, courtesy of thinkorswim:
What does this trade give you?
- small initial delta so if you're wrong it won't be that bad
- positive vega so if $EVZ spikes you will be profitable
- the opportunity for positive time decay if the euro does pull back
Learn More About Calendars