protected carry trade

[ForExTractor]

Originally Posted by Nonpiker

Your "protected carry trade" is a swap. For example, buying AUD/USD for value spot and selling it for value 12 months later. You eliminate the currency risk per say, and are just trading the interest rate differential. If interest rates change unexpectedly your swap can appreciate/depreciate in value.

I am not sure any retail shops offer this product since it is geared torwards institutions.

I'm sorry, but swaps have nothing to do with options...

As I see it, a swap is all about exchanging cash flows that bear different interest rates and paying/receiving compensation for the exchange.

[Nonpiker]

ForExTactor, in the example short call/long put is a synthetic short position no? Your risk pofile is topside loss with downside gain. If you are long (spot) and put on that option position on (short call/long put) for expitation one year out (atm), guess what you have?

You have created a swap, no? You have bought essentially for one value date and sold it for further out via the options (if you hold it to expiration).

You will have earned time/vol and the short and paid on the long (crossing spreads though). Like you suggested, I have no idea of the cost effectiveness of this via options, but like I said before you could just use a swap if you can find a retail broker who offers them.

Where do you think he would be earning his yield from? The tom/next roll on the spot position. So effectively he would earn his yield one day at a time via a swap no?

[novice]

Originally Posted by mishak

Novice, if you have an idea which currency is "likely to fall" - just sell it, never mind carry trades. You will collect much more from the ccy movement than any interest on carry trades.

That’s what I was saying just in a reverse manner. That if your carry trade starts to go against you the profit you make from the positive carry is going to be vastly outweighed by a capital loss due to an adverse exchange rate movement. Thus the need to find a carry trade that you are pretty sure will not go against you.

[Panurgo]

Originally Posted by Nonpiker

ForExTactor, in the example short call/long put is a synthetic short position no? Your risk pofile is topside loss with downside gain. If you are long (spot) and put on that option position on (short call/long put) for expitation one year out (atm), guess what you have?

You have created a swap, no? You have bought essentially for one value date and sold it for further out via the options (if you hold it to expiration).

You will have earned time/vol and the short and paid on the long (crossing spreads though). Like you suggested, I have no idea of the cost effectiveness of this via options, but like I said before you could just use a swap if you can find a retail broker who offers them.

Where do you think he would be earning his yield from? The tom/next roll on the spot position. So effectively he would earn his yield one day at a time via a swap no?

Correct, it' s a swap where you take the interest rate differential risk.
An informative article can be found here: http://home.earthlink.net/~green/whatisan.htm

CMC does offer swaps to retailers.

[ForExTractor]

Originally Posted by novice

That’s what I was saying just in a reverse manner. That if your carry trade starts to go against you the profit you make from the positive carry is going to be vastly outweighed by a capital loss due to an adverse exchange rate movement. Thus the need to find a carry trade that you are pretty sure will not go against you.

Novice, I think you overlooked Crashy's intention to hedge the capital loss by using options...