Which Way Wednesday – Are the Markets Now Too Big to Fail?

What a long, strange trip it's been.  

This morning the Nikkei is back to its 20-year high of 20,900 but still far shy of the all-time high of 39,000 – hit way back in 1989.  We'll forget ancient history and focus on the current move, which is now up 5,000 points since the summer of 2016 – just barely over a year ago.  There's nothing too strange about that, the other Global markets have similar gains and Japan's Corporate Profits are up 23% over the same period – so 2/3 of the move may even be justified.  

Japan, along with most of the World's markets, has been quite the under-performer for the past decade.  Back in May, I was interviewed on China Global Television and we were discussing Brazil's scandals and we decided we liked Brazil's ETF (EWZ) for a bullish play, saying:

So I like EWZ down here ($32.75) and we can take advantage of this dip with the following:

  • Sell 5 EWZ 2019 $25 puts for $2 ($1,000) 
  • Buy 10 EWZ 2019 $25 calls for $11.50 ($11,500) 
  • Sell 10 EWZ 2019 $35 calls for $5.50 ($5,500) 

That's net $5,000 on the $10,000 spread that's over $7,000 in the money to start.  The upside potential is $5,000 which would be a 100% return on your money and your worst-case downside would be owning 500 shares of EWZ for net $30/share ($15,000).   The ordinary margin on the short puts is just $780 so it's a very margin-efficient play as well.


continue reading