Author Topic: Speculative position opened against Turkish Lira today  (Read 1747 times)

bwall

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Speculative position opened against Turkish Lira today
« on: August 13, 2018, 10:36:35 AM »
Is anyone else out there following the Turkish Lira crisis?

In a nutshell, the Turkish president put his son-in-law in charge of the Central Bank, stated that he believes high interest rates cause high inflation (not that high interest rates are the result of high inflation), refused to raise interest rates to fight 18% y/o/y inflation, said that 'they may have their dollar, but we have our god', and then, if that wasn't enough, today said that citizens should change in their gold and dollars for Lira. Oh, and I forgot to mention the begin of US sanctions for something that started 2 years ago (thanks, Obama!).

So, in light of all that, the Lira has dropped 25% in three or four days, and 45% since the beginning of the year. Today I bought puts against the Lira. It has to drop another 15% for me to break even. Fortunately, I've got a month or two for it to drop that much.

Is anyone else out there doing this?

Financial.Velociraptor

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Re: Speculative position opened against Turkish Lira today
« Reply #1 on: August 13, 2018, 12:07:02 PM »
Is anyone else out there following the Turkish Lira crisis?

In a nutshell, the Turkish president put his son-in-law in charge of the Central Bank, stated that he believes high interest rates cause high inflation (not that high interest rates are the result of high inflation), refused to raise interest rates to fight 18% y/o/y inflation, said that 'they may have their dollar, but we have our god', and then, if that wasn't enough, today said that citizens should change in their gold and dollars for Lira. Oh, and I forgot to mention the begin of US sanctions for something that started 2 years ago (thanks, Obama!).

So, in light of all that, the Lira has dropped 25% in three or four days, and 45% since the beginning of the year. Today I bought puts against the Lira. It has to drop another 15% for me to break even. Fortunately, I've got a month or two for it to drop that much.

Is anyone else out there doing this?

Too hot for my blood.  Curious why you bought puts instead of used a direct forex position.  You can get up to 200 to 1 leverage on currency positions at most brokerages.  Of course, that is what blew up LTCM and nearly took down the entire global economy in 1998 so don't get greedy.

Xlar

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Re: Speculative position opened against Turkish Lira today
« Reply #2 on: August 13, 2018, 12:34:41 PM »
Is anyone else out there following the Turkish Lira crisis?

In a nutshell, the Turkish president put his son-in-law in charge of the Central Bank, stated that he believes high interest rates cause high inflation (not that high interest rates are the result of high inflation), refused to raise interest rates to fight 18% y/o/y inflation, said that 'they may have their dollar, but we have our god', and then, if that wasn't enough, today said that citizens should change in their gold and dollars for Lira. Oh, and I forgot to mention the begin of US sanctions for something that started 2 years ago (thanks, Obama!).

So, in light of all that, the Lira has dropped 25% in three or four days, and 45% since the beginning of the year. Today I bought puts against the Lira. It has to drop another 15% for me to break even. Fortunately, I've got a month or two for it to drop that much.

Is anyone else out there doing this?

This doesn't really sound like a good opportunity. You are making a bet after the event. What makes you think that it will continue to go down relative to the dollar? Not only down, but faster than it has since the beginning of the year? If it's gone down 45% since the beginning of the year that's ~7% per month, compounding. You need it to go down faster than that just to break even!

All the negative events you've listed have already happened. Do you think that the impact from that isn't baked into the price already? Or do you think there will be another negative event?

PDXTabs

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Re: Speculative position opened against Turkish Lira today
« Reply #3 on: August 13, 2018, 01:34:44 PM »
Today I bought puts against the Lira. It has to drop another 15% for me to break even. Fortunately, I've got a month or two for it to drop that much.

This is one of the reasons that I don't play in futures markets: not only did you have pick how much the Lira was going to fall, you also had to pick a time-frame. I'd probably be willing to bet against the Lira (or Turkish companies), but I don't really know when the market will react, even if the writing is on the wall.

I would add that what is happening in Turkey right now is really sad for the Turkish people, and I really do think that Turkey is in trouble, but I don't know how far or how fast markets will react.

bwall

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Re: Speculative position opened against Turkish Lira today
« Reply #4 on: August 13, 2018, 01:45:28 PM »
Great points!

@Financial: I wanted to get a direct forex position, but my broker/dealer didn't offer one. I'd take a 20-1 leverage, but 200-1 is . . . . a bit much. So, I got puts; no margin call, no potential for complete loss (in the unlikely event of a complete recovery of TRY)

@Xlar: Of course it's after the event! Who wanted to short the TRY a month ago? Or even a week ago? I can't list any negative events that haven't happened yet, btw.

My position is that the events are not over yet. They are occurring now, yes, but not completely finished, like a slow-moving train wreck. For example, I noticed the opportunity on Friday the 10th, but I thought that over the weekend that things would get sorted out. But on Sunday Erdogan doubled-down, asking the population to trade their valuables for Lira and I thought it's not over yet by a long shot.

In order for the drop to stop it takes either 1) higher central bank interest rates (which Erdogan has said he's against and put his son-in-law in charge, just to make sure it won't happen OR 2) capital controls (which would trigger an even greater exchange rate fall OR 3) use forex reserves to buy Lira (and sell EUR/USD/JPN/CHF, etc), thus depleting reserves, thus bankrupting the country. Which poison will Erdogan take? Or will the military step in with a putsch? Or will the population go to the streets and demand a change?

Radagast

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Re: Speculative position opened against Turkish Lira today
« Reply #5 on: August 13, 2018, 01:47:49 PM »
OK, I put in a limit order for 5 shares of TUR at 18.87, which would vacuum up all of my Robinhood account. But if it goes through, I will probably wish I had set it much lower.

bwall

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Re: Speculative position opened against Turkish Lira today
« Reply #6 on: August 13, 2018, 01:51:13 PM »

This is one of the reasons that I don't play in futures markets: not only did you have pick how much the Lira was going to fall, you also had to pick a time-frame. I'd probably be willing to bet against the Lira (or Turkish companies), but I don't really know when the market will react, even if the writing is on the wall.

I would add that what is happening in Turkey right now is really sad for the Turkish people, and I really do think that Turkey is in trouble, but I don't know how far or how fast markets will react.

Fair enough. It is hard to chose velocity and time frame. I got 30, 60, 90 & 180 day puts, since I couldn't chose.

And, yes, it is sad what is happening, and I do think that Turkey is in trouble. I'm not Turkish, cannot vote in Turkey and have no influence over their internal politics at any level. So, given these limitations, one thing I can do is hasten the change by speculating against their currency.

If it's really bad, which would mean the profits are really high, then I can always donate the profits to a Turkish Refugee fund. If I don't participate, then I won't be able to donate these profits to that cause.

bwall

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Re: Speculative position opened against Turkish Lira today
« Reply #7 on: August 13, 2018, 01:52:24 PM »
OK, I put in a limit order for 5 shares of TUR at 18.87, which would vacuum up all of my Robinhood account. But if it goes through, I will probably wish I had set it much lower.

Why didn't I short the TUR? !?!?!?   Oh well, next time, I guess.

Financial.Velociraptor

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Re: Speculative position opened against Turkish Lira today
« Reply #8 on: August 13, 2018, 02:50:03 PM »
@Financial: I wanted to get a direct forex position, but my broker/dealer didn't offer one. I'd take a 20-1 leverage, but 200-1 is . . . . a bit much. So, I got puts; no margin call, no potential for complete loss (in the unlikely event of a complete recovery of TRY)

May I ask who your broker is?  It irritates me when brokers refuse to treat their customers like adults.  Interactive Brokers will assign you essentially any position that is consistent with your questionnaire on risk profile. I have shorted naked calls before without having to apply for special permission.  I suspect they would let you short TRY, long USD.
« Last Edit: August 13, 2018, 02:52:27 PM by Financial.Velociraptor »

sokoloff

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Re: Speculative position opened against Turkish Lira today
« Reply #9 on: August 13, 2018, 03:01:22 PM »
I'd take a 20-1 leverage, but 200-1 is . . . . a bit much.
So, take the 200-1 leverage on 1/10 the position size and you have the same exposure.

jjcamembert

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Re: Speculative position opened against Turkish Lira today
« Reply #10 on: August 13, 2018, 03:57:06 PM »
Fair enough. It is hard to chose velocity and time frame. I got 30, 60, 90 & 180 day puts, since I couldn't chose.

This position is going to be bleeding theta; basically you're paying to hold those puts. I like to sell near-term puts against those as a hedge and get positive theta, creating a "Poor Man's Covered Put."

@Xlar: Of course it's after the event! Who wanted to short the TRY a month ago? Or even a week ago? I can't list any negative events that haven't happened yet, btw.

Regarding entry I have to agree with Xlar that the news is out and the move happened. Only if the price does not currently reflect the news (not low enough), or more bad news comes out then it could drop further. I do know people who were short Lira months ago; they did their homework and it paid off. I don't trade Turkey directly but was short ETFs that have a Turkey component, and personally I'm covering right now.

MaaS

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Re: Speculative position opened against Turkish Lira today
« Reply #11 on: August 13, 2018, 10:06:31 PM »
I do think that Turkey is in for rough times ahead. With that said, I know that I have zero insight into the future of any currency.  They rise and fall seemingly at random, independent of economic performance.

bwall

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Re: Speculative position opened against Turkish Lira today
« Reply #12 on: August 14, 2018, 02:16:10 AM »
Well, it looks like I did indeed miss the move. Zigged when I should have zagged.

bwall

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Re: Speculative position opened against Turkish Lira today
« Reply #13 on: August 14, 2018, 03:17:26 AM »
@Financial.Velociraptor: I use a boutique broker for money changing. I need same day delivery with my regular job, which does not involve speculation. I asked them to set up a trade on TRY.

I think that interest has to be paid on a leveraged short, right? With a central bank rate of approx. 18%, that'd be 1.5% per month, right?

I applaud anyone who goes short, but that can erase a fortune. Have you heard about the billionaire who shorted VW shares during the financial crisis? A cautionary tale:
https://en.wikipedia.org/wiki/Adolf_Merckle 

marty998

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Re: Speculative position opened against Turkish Lira today
« Reply #14 on: August 14, 2018, 04:26:30 AM »
Is anyone else out there following the Turkish Lira crisis?

In a nutshell, the Turkish president put his son-in-law in charge of the Central Bank, stated that he believes high interest rates cause high inflation (not that high interest rates are the result of high inflation), refused to raise interest rates to fight 18% y/o/y inflation, said that 'they may have their dollar, but we have our god', and then, if that wasn't enough, today said that citizens should change in their gold and dollars for Lira. Oh, and I forgot to mention the begin of US sanctions for something that started 2 years ago (thanks, Obama!).

So, in light of all that, the Lira has dropped 25% in three or four days, and 45% since the beginning of the year. Today I bought puts against the Lira. It has to drop another 15% for me to break even. Fortunately, I've got a month or two for it to drop that much.

Is anyone else out there doing this?

This doesn't really sound like a good opportunity. You are making a bet after the event. What makes you think that it will continue to go down relative to the dollar? Not only down, but faster than it has since the beginning of the year? If it's gone down 45% since the beginning of the year that's ~7% per month, compounding. You need it to go down faster than that just to break even!

All the negative events you've listed have already happened. Do you think that the impact from that isn't baked into the price already? Or do you think there will be another negative event?

These sort of events rarely have a habit of ending smoothly (and even if the Lira bounces up for a while, the volatility will be a plus for our adventurous OP).

Recall 1997/98 - the Indonesian Rupiah fell 70% over the course of 18 months, and this was even after the IMF intervened a few months in when the currency had only fallen 30%.

Turkey will precipitate the fall of other currencies too. I don't think the shorting and trading opportunities have been missed at this point, and in all likelihood the volatility will be of benefit to traders out there (pick that bloody VIX off the floor again).

DYOR, I do not speculate myself on currencies.

MustacheAndaHalf

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Re: Speculative position opened against Turkish Lira today
« Reply #15 on: August 14, 2018, 07:48:23 AM »
Is anyone else out there following the Turkish Lira crisis?
Yes, but not with investment dollars.

Investment dollars are flowing out of not just Turkey, but banks and countries with exposure to Turkey.  From what I can see, the market has priced in the chance of Turkey defaulting on it's debt.

jjcamembert

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Re: Speculative position opened against Turkish Lira today
« Reply #16 on: August 14, 2018, 11:54:47 AM »
@Financial.Velociraptor: I use a boutique broker for money changing. I need same day delivery with my regular job, which does not involve speculation. I asked them to set up a trade on TRY.

I think that interest has to be paid on a leveraged short, right? With a central bank rate of approx. 18%, that'd be 1.5% per month, right?

I applaud anyone who goes short, but that can erase a fortune. Have you heard about the billionaire who shorted VW shares during the financial crisis? A cautionary tale:
https://en.wikipedia.org/wiki/Adolf_Merckle

Buying puts == going short. There are many ways to go short yes, and buying puts has less upside risk than shorting stock outright or selling naked calls, but for the price of the option greeks.

I don't see anything that says Merckle lost all his money going short. He shorted VW, "resulting in losses of a low three-digit million in euros." But, "May 2008 he was worth $9.2 billion." Don't think that loss was that big relative to his net worth. A $300M loss would be 3% loss for him.

bwall

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Re: Speculative position opened against Turkish Lira today
« Reply #17 on: August 14, 2018, 01:11:23 PM »
Buying puts == going short. There are many ways to go short yes, and buying puts has less upside risk than shorting stock outright or selling naked calls, but for the price of the option greeks.

I don't see anything that says Merckle lost all his money going short. He shorted VW, "resulting in losses of a low three-digit million in euros." But, "May 2008 he was worth $9.2 billion." Don't think that loss was that big relative to his net worth. A $300M loss would be 3% loss for him.

Yes, puts are a short position, but with different repercussions both on the upside and the downside.

Here's another article about Merckle. I agree that it seems unlikely that anyone would end their life over a 3% loss of net worth, or even 10%. But, don't forget that this was the middle of the financial crisis. But, it does appear that the VW short is what pushed him over the edge.

https://www.nytimes.com/2009/01/07/business/worldbusiness/07merckle.html

Financial.Velociraptor

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Re: Speculative position opened against Turkish Lira today
« Reply #18 on: August 14, 2018, 04:14:57 PM »
Lots of chatter in financial media about trading around the Turkish Lira.  I'm not hearing anything about trading around similar moves in the Argentine Peso.  Argentina has spent more time in default in its history than being current.  You'd think it would be the surer short bet.

MustacheAndaHalf

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Re: Speculative position opened against Turkish Lira today
« Reply #19 on: August 15, 2018, 01:24:59 AM »
Sometimes I feel like I don't have all the data.  Today sounds good for short sellers, with the President of Turkey imposing high tariffs on U.S. goods.  It sounds like no solution in sight...

Yet TUR is up +11% and the lira has risen against the dollar.  It's hard to know the complete picture, and I figure other investors already know it better than me, and their knowledge has been incorporated into market prices (and currency valuations).

So maybe that's another reason why I follow the news, but keep my investments where they were.

sirdeets

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Re: Speculative position opened against Turkish Lira today
« Reply #20 on: August 15, 2018, 02:20:14 AM »
I took the opposite bet - that beyond the worse case scenario was already factored into the price - and there was a decent chance of a non-fatal landing, with recent strong corporate growth, value @ PE of <5 on the index, foreign ownership of some of the bigger banks, etc. Moved ~4% of my portfolio into the TUR ETF on Monday. So far a quick 9% up.

jacoavluha

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Re: Speculative position opened against Turkish Lira today
« Reply #21 on: August 15, 2018, 06:27:58 AM »
OP I think you have no advantage if the knowledge you have is nothing more than what you read on the internet. If you believe in efficient markets. There are people that know more than you because they know more than just what is written on the internet. Id be scared to be short anything already down 45%. I watched a friend lose about $300,000 making a similar bet, but against the dollar a few years ago.

Radagast

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Re: Speculative position opened against Turkish Lira today
« Reply #22 on: October 28, 2018, 09:41:15 PM »
So, how did this work out for you? My limit order was 1 cent per share below the low, so that 90-whatever dollars has been earning the same it would have been in my checking account.

TFT

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Re: Speculative position opened against Turkish Lira today
« Reply #23 on: October 29, 2018, 06:22:29 PM »


This doesn't really sound like a good opportunity. You are making a bet after the event. What makes you think that it will continue to go down relative to the dollar? Not only down, but faster than it has since the beginning of the year? If it's gone down 45% since the beginning of the year that's ~7% per month, compounding. You need it to go down faster than that just to break even!

All the negative events you've listed have already happened. Do you think that the impact from that isn't baked into the price already? Or do you think there will be another negative event?

Also curious to see how this worked out (I suppose I can look up the Lira). All of the global macro hedge funds and investment shops already price this risk into their valuations / outlook. Unless you have insight into the future, I think it's blind speculation. I hope you got lucky though.

JAYSLOL

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Re: Speculative position opened against Turkish Lira today
« Reply #24 on: October 29, 2018, 10:06:35 PM »
Ouch, looks like it's up quite a bit since the OP on Aug 13

Xlar

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Re: Speculative position opened against Turkish Lira today
« Reply #25 on: November 02, 2018, 11:55:51 AM »


This doesn't really sound like a good opportunity. You are making a bet after the event. What makes you think that it will continue to go down relative to the dollar? Not only down, but faster than it has since the beginning of the year? If it's gone down 45% since the beginning of the year that's ~7% per month, compounding. You need it to go down faster than that just to break even!

All the negative events you've listed have already happened. Do you think that the impact from that isn't baked into the price already? Or do you think there will be another negative event?

Also curious to see how this worked out (I suppose I can look up the Lira). All of the global macro hedge funds and investment shops already price this risk into their valuations / outlook. Unless you have insight into the future, I think it's blind speculation. I hope you got lucky though.

I was curious and decided to look it up, lol:

On 8/13/18 0.13 USD would by 1 Lira
Today 11/2/18 0.18 USD is needed to buy 1 Lira.

So I would say that overall this was not a good market timing attempt.

Xlar

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Re: Speculative position opened against Turkish Lira today
« Reply #26 on: November 02, 2018, 11:58:44 AM »
OK, I put in a limit order for 5 shares of TUR at 18.87, which would vacuum up all of my Robinhood account. But if it goes through, I will probably wish I had set it much lower.

Why didn't I short the TUR? !?!?!?   Oh well, next time, I guess.

There was also the thought that shorting TUR would work better. How would that have turned out?

On 8/13: $19.07
On 11/2: $24.76

So also pretty terrible.

frugledoc

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Re: Speculative position opened against Turkish Lira today
« Reply #27 on: November 02, 2018, 12:23:24 PM »
Forex markets are said to be extremely efficient.  Almost impossible for dumb money like OP to have an edge.

Scandium

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Re: Speculative position opened against Turkish Lira today
« Reply #28 on: November 02, 2018, 07:01:34 PM »
Is anyone else out there following the Turkish Lira crisis?

In a nutshell, the Turkish president put his son-in-law in charge of the Central Bank, stated that he believes high interest rates cause high inflation (not that high interest rates are the result of high inflation), refused to raise interest rates to fight 18% y/o/y inflation, said that 'they may have their dollar, but we have our god', and then, if that wasn't enough, today said that citizens should change in their gold and dollars for Lira. Oh, and I forgot to mention the begin of US sanctions for something that started 2 years ago (thanks, Obama!).

So, in light of all that, the Lira has dropped 25% in three or four days, and 45% since the beginning of the year. Today I bought puts against the Lira. It has to drop another 15% for me to break even. Fortunately, I've got a month or two for it to drop that much.

Is anyone else out there doing this?

This doesn't really sound like a good opportunity. You are making a bet after the event. What makes you think that it will continue to go down relative to the dollar? Not only down, but faster than it has since the beginning of the year? If it's gone down 45% since the beginning of the year that's ~7% per month, compounding. You need it to go down faster than that just to break even!

All the negative events you've listed have already happened. Do you think that the impact from that isn't baked into the price already? Or do you think there will be another negative event?

These sort of events rarely have a habit of ending smoothly (and even if the Lira bounces up for a while, the volatility will be a plus for our adventurous OP).

Recall 1997/98 - the Indonesian Rupiah fell 70% over the course of 18 months, and this was even after the IMF intervened a few months in when the currency had only fallen 30%.

Turkey will precipitate the fall of other currencies too. I don't think the shorting and trading opportunities have been missed at this point, and in all likelihood the volatility will be of benefit to traders out there (pick that bloody VIX off the floor again).

DYOR, I do not speculate myself on currencies.
Great insight, unbeatable reasoning.

ChpBstrd

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Re: Speculative position opened against Turkish Lira today
« Reply #29 on: November 02, 2018, 09:04:40 PM »
Is there a "classics" sticky thread for market timing posts? If not, why not? This temptation keeps arising among us, we keep watching people get wiped out despite getting replies with the usual B&H slogans, and yet you have to really dig to find, say, 100 examples of failure.