Crisis Equals Opportunity. A Spec Trade On Turkey

Crisis Equals Opportunity. A Spec Trade On Turkey

It is often said that one has to “buy when there is blood on the streets“, meaning that when a crisis hits that is often the time to act without hesitation and grab the opportunity with both hands.

Right now, Turkey finds itself in the depth of political crisis which if not resolved could lead to a larger economic meltdown. During April, Turkish President Recep Tayyip Erdogan announced that the country would hold a parliamentary and presidential elections during June, more than a year earlier than they would take place. The decision comes as the Mr Erdogan seeks to implement reform to allow the government to make stronger decisions that would shape the future of the country.

This is not the first time that Turkey has been in crisis mode. In 2016, the country survived a failed military coup which led the President to crack down on dissent which has lead to thousands of people including political opponents, civil servants, journalists and police being jailed.

While we have not experienced a crisis to this extent in South Africa in recent years, it is noted periods of extreme pressure have always been the best of opportunity to accumulate assets or participate in trades that are often contrary to the general/mass consensus.

Have a look at the chart of the South African Rand below:

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Over the last twenty years we have seen three occasions where the currency was under extreme pressure, although not all our own doing:

1. September 2001: Terrorist Attacks, falling commodity prices and SA Currency Crisis
2. October 2008 to March 2009: Global Financial Crisis
3. December 2015: “Nenegate”- the firing of then finance minister Nhlanhla Nene.

Although not easy to identify at the time, each of these moments in a country’s history represented a buying opportunity.

A look at the daily chart for the US Dollar versus the Turkish Lira sees the pair massively stretched and rolling over from overbought territory while the candle structure reflects buying of the currency at current levels. We also see the RSI signaling bearish divergence, while also printing a bearish engulfing candle.
Turkey’s 10-Year Bond has also seen buying with the yield moving from over 15% to 13.45% at the last close, reflecting buying interest.

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How To Participate:
Access to the Turkey’s stock market is accessible via the iShares MSCI range, which gives investors and traders access to county-specific ETFs that track the country’s stock market index.
The weekly chart for the iShares MSCI Turkey ETF shows the price have declined yeart-to-date, reaching a high of $46.66 in late January to test a low of $30.61 during the course of last week, rebounding at support.

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Traders could look to participate via by buying call options where the maximum risk the premium paid. I am looking six months out, to give the this idea time to work.

Trade Levels: 

Underlying Price: $33.81
Strike: $38
Expiry: 16-November-2018
Premium: Around 3.70 at the last close

Alternatively you could look to buy the underlying ETF using the following trade parameters:
Buy TUR at $33.81 (or better)
Stop-loss: $30.00
Take Profit Target: $40.00

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