This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

EWJ: Why You Should be Aware of Foreign Currency

TheStreet Premium Services

A complimentary preview
of Options-Profits Previews

Options Course: On Saturday, December 1, the CBOE, Option Pit and OptionsProfits are hosting a full-day class, Using Volatility to Improve Directional Trading CLICK HERE FOR INVITE AND TO REGISTER.

Americans are so used to having a globally dominant currency that I think we sometimes forget that the U.S. dollar is just another social contract. Like every other "store of value," it is only worth whatever goods or services someone else will give us for it. I lived in Scotland for a little while, and I remember being struck by how much more aware friends there were of other currencies and exchange rates.

Currency pairs and related assets can get confusing sometimes, so I thought I would explain the details of Japanese Yen-linked assets for readers who don't regularly look at foreign exchange markets. A long iShares MSCI Japan Index (EWJ) position is one of my picks for 2013, and tomorrow I want to take a closer look at JPY/USD volatility skew because there's something instructive going on there.

Here are the main assets you should know about.

JPY/USD futures and options on those futures trade at the CME. The current contract, for December 2012 expiration, is priced at 0.012194, which means that if you give me $0.0122 cents, I'll give you ¥1 in return. A mental trick to make sense of the price quote for any X/Y pair is to think, "If I give the market one X, how many Ys can I get in return?"
Source: CME Group, iVolatility
6J futures price, 2009-2012

On the electronic GLOBEX exchange, these futures have a ticker symbol of 6J; the open outcry ticker is JY. Options on these futures are actively traded, with an open interest recently of more than 102,000 contracts, and they are an important source of data for us.

The spot forex market trades USD/JPY instead, so you will see quotes in the 82 range. That is, if you give the market $1, you can get about ¥82 in return. Note that these are clean, neat ratios: 1 / 0.012194 = 82.0075

There is also an ETP, CurrencyShares Japanese Yen Trust (FXY), that trades about 260,000 shares and 3000 option contracts per day. The price of FXY reflects the value, in dollars, of its yen holdings. So for the yen Xs held in the fund, the market price of the Trust is Y. As you might expect, then, FXY is a proxy for the JPY/USD or 6J futures. FXY was listed in early 2007, so that's why, to get much historical context, we have to look at other assets.

OptionsProfits can be followed on Twitter at

Jared can be followed on Twitter at

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
Top Rated Stocks Top Rated Funds Top Rated ETFs