Long time readers know that I'm very bearish for Euro. Regardless how you slice it, the Euro zone countries are just a mess, a huge mess which cannot be cleared without a collapse. I even made a bold statement that I would laugh all the way to short Euro at whatever level Euro will go upwards. Don't say I'm arrogant because I really feel the Euro prospect is extremely dire. For me, Euro should have already substantially depreciated or plummeted if the law of nature is still working with gravity. Indeed it has been doing so if you check it against gold, the only authentic money at the moment. But Euro is still very "strong" against US$ and is even appreciating when all kinds of the bad news are coming out almost on a daily basis. This is not very good for my bearish bet with EUO, which is an inverse ETF primarily based on the US$ vs Euro exchange rate. I'm very much amazed and constantly trying to reason why. One obvious reason I discussed a few weeks ago was that the US$ and Euro are competing to see which one is a better currency destructor. Well, I just read an interview with Soros, who gave another reason which I hadn't thought about. I assume everyone knows Soros. Regardless you hate him or like him, he is one of the most successful traders still alive. When Soros talks, I listen. Soros said Euro is still so strong because of China. China has so much surplus that they need to find some way to diversify. In addition to US$, Euro is the only other option with this kind of the scale suitable for China. So China really does not want to see a failing Euro. Therefore they always come in to buy whenever Euro starts to decline. Due to this reason, Soros said he would not buy Euro but also would not short Euro.
This is a very good reason to justify why Euro has been so strong in a totally messy situation. I need to take it seriously and will adjust my strategy. Does that mean I will not short Euro? Not really. There are two kinds of strategies to short.
- One is to directly short with which it is important that you need to be really accurate in the timing and the trend of the underlying stock, especially its price that you need to see it almost immediately declining. This is the strategy I should avoid now for Euro if I believe what Soros said is right. Actually I did lose some money recently with this strategy. Now I understand better why.
- The other strategy is to short something for a range. You don't need to be right totally for the trend; actually it will allow the underlying stock to even appreciate within certain range but still you can make money. Selling naked call options is a typical method for this strategy. If your big trend is correct but the prices fluctuate or stay largely where it is, this strategy is especially effective. As I said before, I have shorted Euro for at least 2 years by now and I did make quite a lot of money, actually with this tactic. I will continue with this strategy as I really don't think Euro has any future with the current status. Euro may survive only if it drastically changes in its composition, e.g. the weak links such as Greece or Portugal are removed from the Euro zone. I still stick to my gun that Euro will not survive with its current shape for 5 years. I will add more such short positions if it continues to appreciate.
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