Saw this tweet by Raoul Pal (ex GS, ex GLG Global Macro Fund, founder The Global Macro Investor, founder Real Vision) this week and it got me thinking.

How would you do this though? Do you have to have access to spot FX to take advantage of the carry or can you structure it with futures?

I think the base idea is (using USD:EUR/6E Futures prices for May 15th) that with June worth 112.39 and September worth 113.24 there is 0.85 USD or 0.76% carry for the 3 months. At the same time the Sep 112.50 put is only worth 1.03 so if you entered the carry trade, and bought the put, you'd be long a synthetic call which is only costing you 0.07 (1.03-0.85-0.11 intrinsic). Is that right?

Going to mention several people who have a background in options, or currencies, or are just good people to have involved, to draw their attention to this and hopefully get a good conversation going. Seems like a good Carley Garner question but don't think she's an actual member.

@artemiso @Big Mike @Blash @centaurer @iqgod @jackbravo @kevinkdog @mattz @myrrdin @rleplae @ron99 @Rrrracer @sam028

Thanks for the mention SMCJB. This is very much out of my wheelhouse but I'll follow this thread to learn more!

Thanks @jackbravo I saw you were active in several of the currency threads, and included you.

SMCJB 

I think the base idea is (using USD:EUR/6E Futures prices for May 15th) that with June worth 112.39 and September worth 113.24 there is 0.85 USD or 0.76% carry for the 3 months. At the same time the Sep 112.50 put is only worth 1.03 so if you entered the carry trade, and bought the put, you'd be long a synthetic call which is only costing you 0.07 (1.03-0.85-0.11 intrinsic). Is that right?

Maybe obvious I'm not a currency guy as I think I've got it the wrong way around. To collect the carry you would need to sell EUR (and pay 0% to borrow) and buy USD (and get paid 2% for deposit). A such you need to buy the 112.50 call to protect yourself. The call settled 1.76 so now your cost is 0.95 and you have exposure between you sales price (in this example 112.39) and your strike 112.50. Interestingly 0.95+0.11 = 1.06 which is very close to the put price. If it looks to good to be true, it normally is!

Still leaves the question, with carry is pronounced as it is (US rates higher than Europe, Japan etc) and implied volatility as low as it is, whats the 'macro' trade to take advantage of this.

jackbravo 

Thanks for the mention SMCJB. This is very much out of my wheelhouse but I'll follow this thread to learn more!

Yep I'm in the same boat

For the most part, futures track FX pretty closely, but there can be some big structural differences on a chart. Not sure how that would affect options, which I know absolutely nothing about... looking forward to hearing others chime in so I, too, can learn.

SMCJB 

If it looks to good to be true, it normally is!

Indeed, this is probably the best advice in just about any situation lol.

I am not sure how to put on the carry trade as mentioned but my immediate reaction after reading that tweet is to buy puts or get long volatility.

I would just suspect only an overly crowded trade would make its way to my brain in this fashion.

I have never found currency to be very predictable though and this is outside my circle of competence for sure.

Isn't there a 75% implied probability of >=25 bps rate cut looming? Not sure how that's priced into this bet.