1). CCI has a full, long position in the major Brazilian ETF (EWZ). This fund is up about 10% so far this year. An option position to hedge against a stall or fall in this market's rise was established. Specifically an unbalanced butterfly spread was discussed on https://www.tastytrade.com. Given the overall long position of CCI in EWZ this seemed to make a tremendous amount of sense. Specifically a Feb $62/$63 - $66/$68 butterfly was established for a credit of $.94/contract after commissions. A few scenarios:
- Best case for this trade - the stock stalls in the $63 to $66 range and the portfolio pockets the $.94/contract (nearly 1.5% gain). This is a relatively narrow range but is offset by the relatively minor impacts to the overall portfolio if the etf trades out of that range as defined below:
- Best case for the position - the stock rockers well past $68. This trade loses $1.06/contract, but the long holding goes up substantially. Admittedly, doing this trade will be a drag on performance, but the position will still be up nice;y
- Worse Case - The etfs falls below $62.06. That is the break even for this trade and this trade will lose an insignificant $.06/contract. However, the long portion of the portfolio will of course be down.
2). As previously posted, CCI started the year intending to build a position in the emerging market etf (EEM). However, with this fund also increasing by 10% this year, CCI is thinking it might be time for some consolidation. Hence, earlier this week CCI bought the Feb $38, $40, $42 butterfly for $.52. This trade profits if EEM slides back to around $40 in the next three months. This is a very modest position size and in essence what seemed like a fairly cheap way to be have some short exposure in the global portfolio. As of Friday, EEM is trading around $42.50. So currently, this is not looking too good.