Japanese Yen (FXY) - Bearish Bet on Yen

FXY is the CurrencyShares Japanese Yen Trust. It's designed to track the price of the Japanese Yen net of Trust expenses, which are expected to be paid from interest earned on the deposited Japanese Yen. The LIVEVOL™ Pro Summaryis included below.



The Trust normally trades 1,516 option contracts a day. Today over 35,000 have traded in 2.5 hours. 30,000 of those were in a massive bearish spread. The Company Tab snapshot is below (click the image to enlarge).



The day's biggest trades snapshot and the Options Tab snapshot (both below - click either to enlarge) demonstrate the large spread.





The trade:
Buy 10,000 Mar 105 puts for 1.70
Sell 10,000 Mar 100 Puts @ 0.40
Sell 10,000 Mar 110 Calls @ 1.20

Net outlay is 10,000*100{1.70 - 0.40 - 1.20} = $100,000
In other words, the spread cost 0.10 for each one.

The Payoff:
This is exactly the bet taken on a Chinese stock I blogged about a few weeks ago. You can read that blog by clicking HERE.

Analyzing a multi-leg trade is easiset done by separating the trades into smaller and more recognizeable trades.

In this case let's look at the spread in two trades:
(1) A put spread.
Buy 10,000 Mar 105 puts for 1.70
Sell 10,000 Mar 100 Puts @ 0.40

Simply stated, this is a 105/100 put spread betting the underlying goes down to 100 but not much below that.

(2)
Sell 10,000 Mar 110 Calls @ 1.20

Short calls - nuf said.

So the trade is selling updide calls @ 1.20 to pay for a put spread that costs $1.30. Bearish on the put spread, bearish on the naked call sales (note, there is no underlying so the calls are naked ignoring actual investments in the Yen).

The payoff diagram is included below:


If the Yen rips, this is an "unlimited loser."

The Charts Tab snapshot is included below for reference (cick the image to enlarge).



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