If you have any Euros, sell them right away. It is guaranteed you will lose money if you hold them. The situation is just too dire to have any hope for a real return! The stock market is wildly bullish with almost all the technical indicators pointing to a bearish trend. This is the most dangerous time to trade for either direction as you never know which way it will go in the short time period. While I know it will be one heck of bloodshed correction at some point, I just don't know exactly when. The market has reached the point of stupidity with the hyperactive euphoria, which can push it further to more extreme for some time. I always have the impulse to short more but rationality tells me: do not fight with the market. The market can be irrational for longer than you can stay solvent. Having said that, one thing I'm almost 100% sure about is the outcome of the Euro. And even if you don't have any Euros, I think it is a very safe bet to short it if you want to make some money in the current irrational market.
They have just gone through Greece and Ireland, right? Now comes Spain and you may have heard that Moody's has downgraded the Spain's credit ratings. This is a big deal, friends. It means on top of the already very dire financial situation Spain is facing, it is more costly and difficult for them to borrow money. Spain is much bigger than Greece and Ireland in terms of its economy and I'm not sure there is any possibility to bail it out without a deadly consequence for the Euro. More terrible things are that many countries including Germany and US have huge exposures to the Spanish debts. See the Spanish "Ghost Towns" here and details about its crisis. In the line the next crisis may come with Portugal, Italy, Belgium, and even France. So what can you do from the trading perspective?
Well, the easiest thing to short Euro is to buy EUO. Buying EUO is just like buying a stock with no time limit. You can hold it for as long as you like if it goes the direction as you are hoping for. Currently it costs about $21 per share ($2100/100 shares). However, if you would like to have a bit more juice with some leverage, you may think about its options. You pay less for the same number of shares you'd like to control and the potential gain is much bigger if you are right. Of course, if you are wrong, you may lose all the money you put in but just limited to the amount you bet with. You also have to think about the time limitation with options. Personally I like the long-term options as I think Euro has a long way to go down. E.g. EUO $17 call option expired in Jan 2013 (EUO130119C00017000). You may buy this call option (to bet it to go up) likely around $5 or so per share (one contract = $500/100 share) for about 2 years time period. If EUO dose increase during the next year, ie. Euro further depreciates in 2011, the percentage increase for the call option will be much bigger than if you simply buy EUO.
We are heading to Portugal for the Christmas time. Likely this is my last blog for this year. Wish you all the best for the holiday season. Hope my blogs have given you at least some food for thoughts and wish prosperity will come more with you in the new year.
MERRY CHRISTMAS AND HAPPY NEW YEAR!
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