If you’re looking for a little strategic diversification, consider branching out to currency funds. We are bullish on the euro, and perhaps even a little bearish on the U.S. dollar as traders are becoming less risk averse.

It seems traders are shifting to a slightly more bullish outlook, and even the rumors of a Fed intervention have not been able to keep the euro down. These are both good signals for a bullish trade.

The trade here is on the CurrencyShares Euro Trust (NYSE: FXE), an instrument that is very similar to an ETF and should go up as the dollar falls in value.

Trade: FXE 132/133 October call spread

Buy to open FXE Oct 132 Calls
Sell to open FXE Oct 133 Calls

Target Entry Price

Right now the spread costs 34 cents or so. We are shooting for a limit order at 31 cents.

Position Sizing

With a long call spread, the maximum risk is equal to the amount invested. This should help you size your position so that if things don’t work out with the trade it won’t be too disruptive to your total account.

Profit

Traders will profit from a rise in the stock toward or above $133

Max Loss: 31 cents per share
Max Gain: 69 cents per share
Breakeven: $132.31

To learn more about this trade, including the differences between credit and debit spreads, watch the video here.

Disclaimer: It is important to understand the risks of trading options before you attempt a trade like this. This article is for educational purposes only.

This article is brought to you by LearningMarkets.com.

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