Anyone know how to best short the yuan?

[BPCAP]

Does anyone have any tips on how to best short the yuan?  By best, I guess I mean cheap and in a way where your only risk is that you are wrong on the yuan, rather than contract roll risk (think ETFs like USO that, years ago, didn't track oil because it allowed itself to get front run by hedgies as they rolled their underlying contracts); or liquidity risk; etc.

 

The short would be for a retail-type account. 

 

Thanks, and appreciate the help.

 

[randomep]

Does anyone have any tips on how to best short the yuan?  By best, I guess I mean cheap and in a way where your only risk is that you are wrong on the yuan, rather than contract roll risk (think ETFs like USO that, years ago, didn't track oil because it allowed itself to get front run by hedgies as they rolled their underlying contracts); or liquidity risk; etc.

 

The short would be for a retail-type account. 

 

Thanks, and appreciate the help.

 

 

That's a great question BPCAP, unfortunately, I have no answers but more questions.

 

1. how do you even buy the yuan, if you aren't in china aren't chinese and don't have a chinese bank account

2. can you explain, slowly, what is rolling? thanks

 

 

[BPCAP]

 

1. You don't have to be in China to buy yuan.  A number of banks will allow you to buy yuan--the limits of which I don't know.  There seem to be some yuan related ETFs like CNY and FXCH, but I'd rather not deal with these or even short them.  Buying yuan is easy, but I'm wondering how one efficiently shorts the currency or otherwise benefits when they (finally) devalue.   

 

2.  "Rolling" means buying a new contract(s) when one expires.  To go back to the USO example, that ETF doesn't hold or warehouse oil.  Instead, it buys a short term future or some other derivative, and when that thing expires, it has to buy a new one.  Rolling contracts has risks and costs, especially when the markets know exactly what derivative your fund is buying--and when. 

 

Hope this explains things.

[fareastwarriors]

You're being front run by Kyle Bass.  ;D ;D ;D

 

http://www.cnbc.com/2016/02/03/kyle-bass-china-banks-months-away-from-danger-territory.html

[BPCAP]

Haha.  Good thing is because the yuan market is so huge, there's room in the trade for everyone. No crowding out.

[Sharad]

If the thesis is sound, shorting Alibaba would be a decent move, given it has most of its earnings in CNY, and it is a proxy for the Chinese consumer (who would be squeezed if the banks stopped lending). Just a thought...

[gokou3]

I believe Interactive Broker has CNH (offshore RMB) option contracts, but I was too lazy to do further research on it.  Seems very low liquidity too.

[JBTC]

Was told to buy USD/CNH in IB. Never tried though.

 

Negative carry, rates can change quite a bit due to Chinese central bank attempting to squeeze speculators from time to time.

 

 

[james22]

http://www.zerohedge.com/news/2016-02-01/here-are-3-trades-hedgies-are-using-bet-yuan-devaluation

[Picasso]

Not sure if people here recall (I can't find a clean article but here's a link http://www.ianfraser.org/kyle-bass-all-the-asymmetry-is-in-the-world-lies-in-japan/) but Kyle Bass had this huge bet that Japanese bonds were this big asymmetric bet on the verge of collapse.  Well 10Y JGB's just went negative.

 

Who knows what happens to the yuan but it seems highly unlikely that this trade is going to work out quickly.  If anything the Chinese will probably do anything they can to screw with the funds shorting their currency.  Seems kind of silly to announce that kind of bet to the world knowing how the Chinese operate.

[TwoCitiesCapital]

Not sure if people here recall (I can't find a clean article but here's a link http://www.ianfraser.org/kyle-bass-all-the-asymmetry-is-in-the-world-lies-in-japan/) but Kyle Bass had this huge bet that Japanese bonds were this big asymmetric bet on the verge of collapse.  Well 10Y JGB's just went negative.

 

Who knows what happens to the yuan but it seems highly unlikely that this trade is going to work out quickly.  If anything the Chinese will probably do anything they can to screw with the funds shorting their currency.  Seems kind of silly to announce that kind of bet to the world knowing how the Chinese operate.

 

Actually, I believe the way he positioned that trade was in the currency options. He said there was two ways it could play out - bond yields would explode or the currency would collapse and he said the later was more likely given the central banks intervention. The JPY is down ~40% since it's highs in 2013 and Japan still can't get any inflation, still has a massive debt burden to deal with, still can't get any growth, and is still facing a demographic cliff...so it probably has further to go. All said, I'd say he was right. No idea how much he made on the trade though.