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Speculative position opened against Turkish Lira today
bwall:
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:
--- Quote from: bwall 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?
--- End quote ---
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:
--- Quote from: bwall 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?
--- End quote ---
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:
--- Quote from: bwall on August 13, 2018, 10:36:35 AM ---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.
--- End quote ---
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:
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?
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