$FEZ Update – Penny Wise Pound Foolish

by CC June 24, 2016 10:48 am • Trade Updates

Yesterday we looked to fade the European stock rally into what markets (and we) assumed would be a Remain vote in the UK with the use of a calendar put spread in the EuroStoxx 50 etf FEZ. Here was the trade:  

*FEZ ($33.58) Buy the June 24th (tomorrow) / Aug 33 Put Calendar for 70 cents
  • Sell to open 1 June 24th weekly 33 put at 40 cents
  • Buy to open 1 Aug 33 put for 1.10

Just as markets assumed a remain vote, our chosen trade structure did as well as we looked to sell weekly puts expiring today to finance a “sell the news” situation where stocks pulled back after a non event, but not crash. With the surprise leave vote, the British Pound and global stock markets are in fact crashing. So this structure turns out to have been penny wise pound foolish.  This is nothing short of disappointing.

With FEZ now 30.50 this trade is worth 0.30. We’re going to close it now and look for opportunity in the new trading environment. Although it sucks getting a direction right and the trade structure wrong, the good thing is that if this trade had been correct in its assumptions we’d have probably been looking at a VIX at 14 this morning and very boring trading for most of the Summer. So there’s opportunity out there. We’ll take this loss and move on quickly to others.

Action: FEZ ($29. ) Sell to Close June 24th / Aug 33 Put Calendar at .30 for a loss of .40

(note: The July 33 puts are quite wide, therefore this is best closed in its entirety and not leg by leg)