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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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  • Look, It's Gold Calls In Yen, Tanto 7 comments
    Jan 6, 2013 9:02 PM | about stocks: FXY

    Excuse me, that's Gold Calls in Yen Quanto.

    Japan is Greece with undercooked fish and fewer grandkids. It is not likely that they will ever be able to repay their debt. Over the course of the next few years, it is increasing likely that they will have to restructure their debt or debase their currency. It is hard to tell whether this will involve the collapse of the JGB market, the collapse of the Yen, or some combination thereof.

    But what are you supposed to do to react to this grim situation? A major problem with shorting the Yen is that you need to find a currency that you like and there are no good examples of a country with inverse issues to Japan's. In many respects both Europe and the US are different by degrees and not by direction. One answer is to buy gold calls in Yen quanto. The mechanics works as follows. You own the right to call gold denominated in Yen. If gold appreciates relative to the Yen, the contract will increase in value.

    If you want to know what happens next, read Endgame: The End of the Debt Supercycle and How It Changes Everything.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital, a partnership that invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our partners, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

    Themes: Yen, gold, Greece, debt, JGB Stocks: FXY
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Comments (7)
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  • More detail please on HOW to own the right to call gold denominated in Yen. Thank you!
    8 Jan 2013, 05:38 AM Reply Like
  • Author’s reply » I hope that you can take advantage of this opportunity, but it would come down to your specific brokerage relationship and what they are able to offer you. A more accessible way to express a negative view on Yen would be to short or buy puts on CurrencyShares Japanese Yen Trust (FXY).
    8 Jan 2013, 05:13 PM Reply Like
  • I know Peter Schiff followers do this when they want more edge on their gold trades with foreign call options on the gold. Like anything, larger accounts get more access and service - but even small fries can make these kind of moves with enough motivation and diligence.

     

    http://bit.ly/ZvOCKd
    8 Mar 2013, 02:00 AM Reply Like
  • Author’s reply » Myron Scholes Global Markets Forum: The Coming Crisis in Japan - Kyle Bass

     

    http://bit.ly/13WlzVW
    13 Mar 2013, 08:59 PM Reply Like
  • Chris, any thoughts on today's massive Yen rally? Is this a chance to add more Yen shorts or in your opinion has the short Yen trade died at least for now?

     

    Also I think I remember reading a note you wrote saying you converted your mortgage to Yen. Is that possible for the average guy? I'd love to know more about it

     

    Thanks
    11 Jun 2013, 02:17 PM Reply Like
  • Author’s reply » Today's massive Yen rally: no particular thoughts (in part because I was speaking at a conference and just got back to my desk for the first time since a week ago). This is not something that I trade actively. It is a huge nominal exposure, but not an actively traded one. So, for someone with a long-term outlook, a chance to add more.

     

    I don't think that Yen mortgages are that easily attainable unless one has a lot of business with a given bank.
    14 Jun 2013, 09:37 AM Reply Like
  • A little late to the party, but if you wanted to construct a gold call in yen quanto, you could buy the gold call in dollars and buy usd/jpy. think of it as a two step:
    1) you sell dollars to buy gold
    2) you buy dollars to sell yen
    the net position is long gold/short yen and the dollars match out. there are all sorts of variations that you can do with regard to the trade -- don't use calls at all just long gold/short yen, calls on gold short yen, calls on gold long puts yen.

     

    my 2oz.
    12 Jun 2013, 10:22 AM Reply Like
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