After a nearly three-month decline against the dollar, I think the yen may be showing signs of a near-term bottom. I’m recommending a trading strategy using a combination of futures and options on ideas the yen will gain some lost ground on the U.S. dollar. There’s good support at 93 and at 92.50 in the yen. The September futures are currently trading near 93.100.

Sometimes you need mixed strategies to optimize risk management in certain environments. I’m recommending a long September futures position, combined with a short options position as a hedge. I recommend buying the September yen futures at 93.20, and the July 93 puts as a hedge. It should cost 71 points, or about $887.50, not including your commission. That’s your defined downside risk on the trade. You pick up the option first, then put in the limit order to buy the futures. The option protection only lasts 15 days, so this is a shorter-term trade. I try to determine calculated risk parameters and targets, to offer the best possible risk/reward on trades. I expect yen futures to a bounce to 96, and if successful, the strategy I’ve outline you should result in a gain of about $2,600 on one position, not including your commissions.

Options call spreads are a bit pricey, although you could also consider the 93.50/95.50 July call spread.

Global uncertainly is heating up, and I think the dollar may head back down. The U.S. dollar seems to be butting up against resistance. This week has brought some bad news on the U.S. corporate earnings front. The Federal Reserve has lowered the key short-term lending rate seven times since September to 2 percent, but given the continued U.S. economic malaise, it doesn’t look like they will be raising rates anytime soon—at least not at the June 24-25 policy meeting. The dollar has been strengthening on ideas the Fed will be raising rates, but I see that rally stalling.

Feel free to call me to discuss these ideas further, or for ideas in other markets. Ask about our special half-off offer for new clients.

Phillip Streible is a Senior Market Strategist with Lind Plus. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.

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