My dual currency option

I had done premature withdrawal on my SGD FD in the beginning of 2008 as the rate was only 2.18%pa.

I started dual currency options with a local bank. Subsequently I sourced for other banks which can give a higher yield. If you have SGD 200k, sign up for premier/priority banking to have a RM to serve you. This is not for prestige purposes, but for convenience's sake, because you can do phone trades which saves you the hassle of going down to the bank personally and filling up all the paperwork. More importantly, premier/priority rates are usually higher than mass banking rates, ie higher returns.

From Jan08 to Jun08, I have paired SGD with NZD. As NZD has dropped quite a lot recently, my principal is now in NZD. Last month I paired NZD with EUR at strike/spot 2.0687 for a period of 1 month, with yield of 15.3%pa.

On the 29Jul, it was my fixing date again. The spotwas 2.1250, a whopping 600 pips rise! Hence my NZD was not converted to EUR, and I got double the interests than placing normal NZD fixed deposit. I do not want to pair it with EUR again because EUR is too high for now. If I strike at spot, I may buy EUR at a high price. If I strike 100 pips away, I can buy it cheaper but chances of buying it is also lower. I looked at other alternatives like SGD, AUD, etc but the curves all look too steep against the NZD.

I placed NZD to pair with CAD at 0.7610, at strike/spot again, 1 month at a yield of 16.3%pa. Reason I do this is because CAD is as weak as NZD recently. Mid term chart of CAD/NZD is almost sideways, with a slight uptrend in the long term chart. Observing CAD/SGD long term chart, the curve is downward sloping, but increasing gradient. It means the MACD is actually rising. Technically speaking, there is a positive convergence, which is a bull sign. In layman's terms, I have a good chance of buying CAD cheap, and CAD has the potential to rise against SGD in the long run. The rationale behind is because I have suffered too much loss from NZD, which just had interest rates cut last thursday, and NZD doesnt look very good in the long run, so it's time for me to cut loss and run.

To explain strike/spot in layman's terms, it simply means my strike price equals the spot price. In another words, it is zero buffer, 0 pips away from the spot. This often gives the highest yield, compared to a 50 pips buffer and a 100 pips buffer, because in terms of risk , 0 pips away is considered to have the highest risk because it is easiest to get converted, which is exactly what I want, because I want to get out of NZD.