Our last Eurodollar trade worked out quite well. That trade was a strangle and we made our money on the call side. We have no clue which direction the Eurodollar will go, but with this trade design we don’t have to! We are straddling the market which means we are buying a call and a put of the same strike price.
So all we want is the market to continue to move. It makes no difference which direction it goes as long as it goes somewhere. The real risk here is if the market flat lines for a while but that is not very likely give all the uncertainty surrounding inflation and futures FOMC interest rate policies. This is a simple low cost trade that allows us to profit without having to call or even be correct in the overall direction of this market.
click on the chart to enlarge
Buy one December 2006 Eurodollar 94.62 put and call at the same time for a combined cost and risk of 14 points ($350) or less to open a position.
Max profit assuming a 14 point fill is unlimited.
Max risk assuming a 14 point fill is $350. This occurs at expiration with Eurodollars trading at exactly 94.62.
Odom & Frey
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