Adjusting for the Dollar . . .?

Discussion in 'Strategy Development' started by ImamicPH, Jul 5, 2006.

  1. For simplicity's sake, let's say I'm only interested in trading the S&P.

    Does it make sense to calculate the real value of the index in terms of the dollar vs. a basket of other currencies(ie the dollar index)?

    Let's say the S&P stays at 1300 for a given period of time. Over that same time the dollar goes down 10%. Does this mean the index essentially gained 10% in "real value"?

    Would this mean the US companies are showing strength? Should I hedge every trade in the US using the dollar index?

    Or am I just overanalyzing this? I'm overthnking this because I spend money in the US anyway?
  2. Let's put it this way....

    You buy SPX at 1300 (you cannot buy it directly but for argument's sake you bought synthetic forwards). Dollar goes down 10%, index stays at 1300.

    Did your position go up 10%? Could you sell and make 10%?


  3. My S&P position didn't move at all. But in this situation I would have shorted the dollar index for the same amount I was long the contracts.

    Since I invested in a dollar based index, to mitigate the market risk of a dollar devalution, is it an advantage to short the dollar?

    Does anyone think this is a good trade?
  4. Does anyone trade like this?
  5. Well, consider this.

    You are taking directional risk in both instruments. So what happens when they both move adversely? You lose on both.

    Now you just gotta figure out when thats gonna happen so you can avoid it.

    On a further note, if you are worried about dollar devaluation with your $ nominated investments, you can always buy some limited risk options on the currency futs that you are interested in.
  6. it's gonna cost you to hedge your dollar assets, whatever they are -- that's not really a trade, unless you're trying to arb something.
  7. day to day in these monetized markets, almost every move up in equity is accompanied by (caused by?) a drop in the dollar. in a sense you're already shorting the dollar when you buy anything with them.

    nybot dxy futures aren't liquid, but gold is a great monetary/hedging tool

    if you dollar adjust the stock market, there is no real value appreciation since the tech burst. in fact, that final 03 low in the US market occurred right around when the DXY crossed below parity with the other currencies in the basket and officially went 'soft'