Yen Carry & Trade Results & The Stock We’re Shorting Next

BY HANNAH SELNER

August 7, 2024

Yen Carry & Trade Results & The Stock We’re Shorting Next

Monday’s dust has settled. Or has it?

Option Pit Research today is diving into the factors that contributed to Monday’s market plummet, how we positioned ourselves before AND during to make $13,842, and the last domino to fall… the stock we’re shorting next.

There’s money to be made from reading this Option Pit Research, I’ll tell you that much.

Let’s go…

Section 1: Yen Carry

I’m not going to get too technical on this; if you’re looking for that, you can find thousands of hours of videos on YouTube (here’s Mark’s explanation from Tuesday). I’m most interested in what we do now, and how you can use what happened on Monday to make money. To understand THAT, here’s what you need to know… and then I’m going to give you a free trade.

There’s a very popular trade called the “yen carry.” It involves borrowing yen at a low cost to invest in other currencies and assets with higher yields. At the end of the trade, you convert the dollars or pesos or whatever you invested back into yen and repay the loan. Normally, it works. You can make around 5-6% annualized returns on dollar-yen carry trades.

Currently, the yen carry trade is being wrecked by three main factors – Japan’s rate increases, an uncharacteristically volatile yen and rate cuts in the US and other economies.

Monday was the straw that broke the camel’s back because it caused what we’re lovingly referring to as the “Carry Bomb,” a domino effect of leverage and covering to compensate for massive losses (or potential losses) on yen carry trades as they evaporated.

In the last month, the yen has gone up 13% due to talk of rate increases in Japan and Fed rate cuts by September. As this happened, the trades unraveled, causing big leveraged investors to:

Cut billions of losses in yen carry positions

De-leverage by shedding other stock and bond holdings they use as hedges (more on this later – this is key)

#2 is the primary reason we saw the effects of the Carry Bomb manifest in US markets.

It’s natural to ask: Could we have known this was likely to happen? Or even… SHOULD we have known this was likely to happen?

The short answer is maybe.

We could have looked at the relationship between the dollar and the yen, the 13% rise in yen over the last month, and the potential for Fed rate cuts to eat even further into the trade. And we could have had on a position that was short the market, or at least short the Nikkei 225 Index (Japan’s top 225 blue-chip companies traded on the Tokyo Stock Exchange) and gone long on the Yen (up $3 in the last few days), or short Apple (Mark did this in Delta Strike – more on this coming).

But we don’t focus on trading Japanese markets, because we don’t need to.

We were still positioned to make money on Monday off of a market drop, NO MATTER WHAT CAUSED THAT MARKET DROP.

And several of our trading services hit triple-digit winners because of that positioning.

Here’s how…

Section 2: Monday Trade Results

Mornings like Monday are why I love coming to work, and why I love what we’re building here every day in Option Pit’s community of traders.

MOST people on Monday morning didn’t even want to look at their positions.

MOST people were down, and how could you not be with the single quickest market drop in history, and the worst day since 2022. The S&P fell 3%, the Dow lost 1,033 points or 2.6%, and the Nasdaq fell 3.4%.

Collectively, the Mag 7 shed $653 billion in market cap.

(One of the Mag 7 is set to drop even LOWER as yen carry buyers shed their position there as well, but more on that in section 3 – I’ll walk you through the next short we see.)

With all these losses…

With all this panic and destruction…

Why the hell was I excited to go to work?

This is why:

Members KILLING IT on strategic SPX and XSP puts added late last week. An 1,000% WINNER for oldmanpoppa, CONGRATS!!

When Mark realized the domino effect that could be caused by yen carry traders covering their position by selling their Apple hedge, he issued an Apple put on Friday, August 2nd…

Which on Monday morning…

He locked in a 500% gain on Apple, selling his puts at $21.00 a piece after he purchased them Friday for $3.50.

Members hit even better closes on Apple:

In total, on Monday across all of Option Pit’s paid services, we closed:

GM puts in Option Shopper for 202%

AAPL puts in Delta Strike for 500%

XSP puts in Trading Desk for 153%

TQQQ puts in Delta Strike for 140%

VIX calls in Weekly Profit Cycles for 191%

$1,000 in each of these positions, and instead of a down day on Monday, you could have had your best day this year – $13,842 in profit.

Now, this money has ALREADY BEEN MADE. I show you this to show you the value of having Option Pit in your corner. If you’re not a member of the services listed above, but you want to be (you should), call us at 888-872-3301.

Option Shopper focuses on cheap options (this 202% winner in GM only cost $2).

Delta Strike focuses on trading Big Money order flow.

Weekly Profit Cycles is a constant, automatic weekly options hedge for your entire portfolio that’s designed to make anywhere from 200-500% winners on days the market has huge moves to the upside or downside.

Instead of rubbing these wins in your face, which is completely useless to you… Let’s talk about what you can do NOW (besides making sure you join these services so you can clean up the next time this happens …again, call us at 888-872-3301.)

Here’s what’s next…

Section 3: The Stock We’re Shorting Next

A key piece of the yen carry trade that has been overlooked – or most people don’t even know where to look to find it – is the Apple hedge.

Apple is widely considered by international investors to be one of the “safest” places to put your money. So when traders build yen carry trades, they often buy Apple as a way to ramp up return. The stock pays a nice dividend, has a ton of cash flow, is buying back gobs of stock…if I am looking for a way to ramp up returns, this is the safest way for a trader in the carry trade to ramp up their returns.

When traders unwind their positions, that INCLUDES selling the Apple they bought to ramp up those returns.

Over the weekend, news broke that Warren Buffett had sold 50% of Berkshire’s AAPL position. Many not in the know assumed that was the culprit behind Apple’s vicious opening print on Monday:

The stock gapped down almost 11% on the open on Monday, “helped by the market pressure” – that was, in fact, not the case.

Apple wasn’t at the whim of the market pressure, Apple WAS the market pressure. Traders unloading the carry trade had to sell Apple to get back the cash they had in the stock…so they could then convert back into the Yen to close their carry trade.

I’m sure Warren’s news didn’t help. But the main reason Apple plummeted was those yen carry traders selling Apple to close their carry positions.

I expect that there are STILL MORE APPLE POSITIONS TO BE SOLD.

Meaning… this isn’t the bottom for Apple. I believe it could go to $190, and I plan to short it that way. This is a free trade idea for you all – and what I believe is the final domino to fall on the Yen Carry Bomb from Monday.

Talk Soon,