Short-Term Hedge

Yesterday we recommended buying to open a position in the CurrencyShares Japanese Yen ETF (NYSE: FXY) July 21, 2017 $90 call option, at a suggested limit price of 55 cents. As noted in the Trade Alert, this is not an indicator-based trade. The trade is intended as a short-term hedge against our open position in the VanEck Vectors Gold Miners ETF (NYSE: GDX) December 15, 2017 $23 put.

While the yen and gold don’t necessarily follow each other historically, lately they have tracked each other closely—we repost the chart below. Our gold and gold stocks indicators both still are quite bearish, so strictly based on the indicators, there’s no reason to close out the GDX put option. However, with investigations surrounding the White House ongoing and former FBI Director James Comey set to testify before the Senate tomorrow morning, there’s a potential for some volatility. Both gold and the yen appear to benefit from some recent move to safety.


Thus, we thought it prudent to have a hedge in place. Given the close tracking between gold and yen lately, we decided to long the yen as a hedge in case gold and gold stocks rallied further in the short term in response to the political uncertainty. This yen option trade could be a very short one. Stay tuned.   

Our bond indicator has moved into bullish “+2” territory. In addition to lower inflation expectations, the fear trade has benefited these perceived safe havens. This may be a trading opportunity. We are monitoring the indicator and will decide depending on it behaves in the next day or two.

Our dollar indicator has moved back into “+1” territory. It has moved around a bit lately, but currently the signal isn’t stark enough to warrant initiating a dollar option trade.

The oil indicator actually flashes a slightly bearish reading as the underlying signal lies on the border between “0” and “-1.” But it’s closer to neutral by a slim margin, so to keep things simple we are calling it “0.” The oil stock indicator is still at “-1.”  

The dollar indicator has become a little more positive over the past week and is now in “+1” territory, while the stock indicator is still at “0,” although it has moved slightly toward the bearish side in recent days.

Indicator Rating
Bonds +2
Gold -2
Gold Stocks -2
Oil 0
Oil Stocks -1
Silver -1
Stocks 0
U.S. Dollar +1

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