Strong in September

World markets were strong in September with the DAX posting a gain of about 5% and the Dow Jones Industrial Average posting an increase of 8.5%. Having had such a strong month and now entering the traditionally corrective month of October. We believe the DAX will be trading sideways to down.

Distance to strike

This being the case the new trade strike price being roughly 10% from the market out to March with a very solid hedge in December will utilize both a short dated Call and the premiums of a long dated call. Taking advantage of solid premiums in March whilst allowing December hedges to withstand major movements against our positions.

Current Data

Current indicators i.e.) moving averages have been recently churning through a sideways motion and are currently pointing upwards. With the end of the US financial year reporting GDP figures, allowing for a fresh direction to be taken on the markets as of the beginning of October 2010.

Why 7000 Calls?

This strike price we believe, is a key level, whereby the DAX30, breaking this level of resistance will indicate a move to a ‘booming’ market. This trade has been formulated taking a moderately bearish outlook on the market in the short term looking to hold such a trade for roughly 6 weeks but also allowing for extra positions to be added if required as further hedging to take full advantage of the current circumstances. The range of 5430 – 6329 allowing some good support/resistance levels.

OUR SUGGESTION 

SHORT MARCH/11 DAX CALENDAR CALL Spread:

SELL 5 x MARCH/11 DAX 7000 CALLS @ Spread (settled @ 92)

BUY  5 x DEC     /10  DAX 7000 CALLS @ Spread (settled @ 17) = Total Spread pts: 75 (5 lots 375 pts) 

Net Premium received: EUR 5 x 75 = EUR 375 (as of settlement prices) (excluding brokerage costs)

Approx. Margin: $10,000AUD for 5 lots

Risk Profile: Expected Loss exposure: approx. 500 EUR  / 1 contract

Profit Potential [single lot]: EUR 375 / 0.71 = AUD 528.17 (1 lot) (Maximum at expiry)

Profit Potential [5 lots]: EUR 1875 / 0.71 = AUD 2642 (1 lot) (Maximum at expiry)

Exchange-rate: AUD/EUR – 0.7118 (30/09/10 – 4:13 pm)

DAX Closing Price @ 29/09/10

Dec/10 FDAX – 6246.92

GO BACK TO TRADE SUGGESTIONS PAGE

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