The Next Big Trade?
A 20x-bagger Trade hiding under plain sight?!
The probability of a Crash remains firmly at 44.44%.
(We have warned early on here).
As we sit in Cash and wait, we are preparing for the next Big Trade...
First of all, a quick reminder that what we are trying to achieve here is to find trades that offer asymmetric risk / reward i.e. we want to risk a little to make a lot!
Regarding the Iran War, here are the trades we presented so far that fit this framework:
1. Reduce Risk
This is the most important one, as Preservation of Capital is our foremost priority.
As we wrote in “Asymmetric Warfare”, when the War broke out the Market was FLAT on the day while trading only 2% off its All-Time-High, which made everyone feel nice and cozy that “nothing ever happens”.
Instead, we placed a probability of a crash at 30% because something did happen!
Now at a 44.44% probability of a crash, we remain cashed up and defensive.
This is the most important position right now.
We give thanks for being the occasional scaredy cats.
2. Short Euro
In the “Return of American Exceptionalism?”, we argued that the US is actually in a “less worse-off” position than the Rest of the World, especially Europe.
Europe is “short Energy”, “long Carbon Credits” and “short brain cells”…
…so we presented “Puts on the Euro” as an attractive hedge for any prolonged closure of the Hormuz Strait… just as we had presented “Calls on the Euro” a year before.
The Euro is 2% lower since, but the recent extensive damage to Qatar’s Ras Laffan, the world’s largest LNG facility and a major exporter of natural gas, brings Europe to an even worse position going forward.
The May 8th $1.15 Puts we mentioned, have doubled already (we give danke / merci etc). Now I would be looking for lower strikes because the downside could be significant if this drags much longer.
As a Europoor, this trade is part of my personal “Capital Preservation” strategy.