NEW YORK (
) -- The March Eurocurrency futures have seen quite a rise over the past several weeks.
The market is now in a clearly defined uptrend on the daily and weekly timeframes. The monthly chart is threatening an official turn to the upside as well. Perhaps the situation in the eurozone has improved -- perhaps it really has not and the markets have simply done a great job of "sweeping it under the rug" for the time being.
Either way, the market is always right. Although I am skeptical of the currency's strong rise in recent weeks, I am of the opinion that it is quite likely the euro has simply moved up into a higher trading range and will likely spend some time going sideways.
The European Central Bank will be meeting tomorrow to discuss the credit crisis as well as concerns over the rise in the shared currency. It is widely expected that rates will remain at current levels and no material changes to ongoing policy will be discussed tomorrow. The continuing stream of eurozone data, as well as headline risk, will likely dictate market direction for the foreseeable future. I feel chances are good the euro finds some equilibrium between the 130 and 140 areas.
Currently, options are being bid up ahead of the ECB meeting. Implied volatility is currently trading at 9.8%, which puts it in the 99th percentile over a 2 1/2-month timeframe. In other words, these options are becoming overpriced and may represent a great premium collection opportunity, in my opinion.
I would recommend selling strangles for the April expiration using the 129 or 130 puts and the 140 or 141 calls as a guide. I would expect that once this meeting is concluded, implied volatility levels will drop rapidly and, thus, the options will lose value.
There are a number of different ways to sell premium in this market right now. Feel free to contact me to discuss any questions you may have or to discuss structuring a trade for you based on your market views and risk tolerance. Please note today is Feb. 6, and all trade data is based on the most recent information.
Futures and options trading is inherently risky and unsuitable for all investors. Past performance is not necessarily indicative of future results. Stop-loss orders intended to limit losses to certain amounts may not be effective because market conditions may make it impossible to execute such orders. Option writing has unlimited risk and an investor may lose more than their original investment.
Commodity Futures Trading Commission disclosure for licensed brokers: This material is conveyed as a solicitation for entering into a derivatives transaction.