Friday, November 28th, 2014

Time for Puts on the Ruble

 

It is time for puts on the Ruble as Russia keeps its troops on the Eastern border of Ukraine and sends its operatives into the neighboring country to cause unrest. Sanctions by the EU and USA as well as the threat of a Russian occupation of a neighboring country have driven the Russian ruble down by a fourth and threaten to drive the currency down even farther. Forex traders who trade the USA/RUB pair will do well to buy puts on the Ruble in the very likely case that things will get worse. In fact in both stock and Forex options anything related to the ruble or investment in Russia is currently at risk.

How Could It Get Worse for the Ruble?

The Russian president, Vladimir Putin, believes that the breakup of the Soviet Union was the most catastrophic event ever for Russia. This is a man who is fully aware that Russia was previously invaded by Napoleon and the Nazis. Mr. Putin is surely aware that Russia lost more than twenty million dead in World War II. However, Russia gave away its buffer states when the USSR broke up. It found that all of its previous satellite states preferred relations with Europe the USA to relations with their previous masters, the Russians. It was the likelihood of substantially greater European influence in Ukraine that caused Russia to bribe the previous president and torpedo a deal with the EU. Subsequent political unrest led to the overthrow of the Ukrainian president and proof that he was robbing the country blind. However, the Russian Federation took advantage of the resulting chaos and caused a rebellion in the Ukrainian province of Crimea which resulted in a part of Ukraine joining Russia. Now Mr. Putin seems to have set his sights on the Eastern cities of Ukraine where many citizens speak Russian as opposed to the Polish dialect spoken in the west of Ukraine. Mr. Putin believes that the West deceived Russia into giving up its client states and then sought to further subjugate his country. It is unlikely that Mr. Putin will give up with only Crimea. Things are probably going to get worse and this means that in Forex options trading it is time for puts on the ruble.

Is This a One Way Street?

Long term thinking indicates that Mr. Putin and his cronies will not last forever and that the Russian people will not enjoy the devaluation of the Ruble and subsequent inflation that will be result of the policies of their leader. However, long term has little to do with the immediate future. So, for not it is probably time for puts on the Ruble. But, why not simply convert rubles to dollars and wait for things to settle down? Every time there seems to a pause in Russian pressure on Ukraine the ruble recovers a bit and every time things get worse the ruble falls again. Currency traders may not be able to predict every turn of event but with puts on the Ruble they reserve the right to sell the currency for dollars at the time of their choosing. This could be a successful options trading strategy for the USD/RUB pair considering current circumstances.

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