If you own Canadian dollars and are making 1.70% why not make 10%+ for the same currency risk using no leverage?
Yield Enhancement
1) Click here for current deposit rates, sort by highest to lowest to qualify best CAD rates.
To enlarge any image in this report click on it
2) Click here for futures market quotes
A) Use the contract with the highest volume
B) Check the price = 78.48
Check the underlying options
3) Choose the closest option delivery month
Click here for quotes used in this example
A) Closest delivery month (August)
B) Days to expiration (30)
C) CAD quotes in USD dollars (0.78430)
D) Contract size $100,000 Canadian, contract value $78,430 USD
4) From neutral (in USD) pick your put (writing a put deliveries a long position)
A) In this case I’m writing the 78.000 put
B) I’m collecting $710.00
In other words I’m getting paid $710 to buy the Canadian $430 a contact better than where it’s currently trading
If it does not trade down to 0.7800 I keep the premium or am paid 0.0910% for the 30 day duration or 10.68% annually. Click here for quotes used in this example
5) If I already owned Canadian Dollars at 0.7843 I’d write the call 0.7900
Click here for quotes used in this example
A) The 0.7900 call expires in 30 days
B) I’ve collected option premium of $640
In other words I’m getting paid $640 on my position to sell the contract $570 better than where it’s currently trading.
Own at 0.7843
Called away at 0.7900
57 point at $10.00 a point = $570
Premium collected = $640
6) If the position does not trade up to 0.7900 I collected $640 or 0.0816% (0.9574% annually) and write another call for the next month.
If the market rallies and the position is called away my gain would be $1,210 or 18.10% annually
The $640 I collected by writing the covered call
The $570 I made on the trade from 0.7843
If the position is called away I repeat the process reentering by writing another put until the position is delivered. If it does not get delivered I’m collecting $500 to $950 per month in premium.
7) If you own Canadian Dollars you can take the currency risk for 1.70%
Or you can get paid 10% to 20% annually to take the same risk.
This brief report was written to provide the basics of the Canadian Dollar yield enhancement trade
If you’d like to review this in detail call me with this web page available and I’ll go through it will you allow 10-30 minutes
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