Yes, buying USD/TRY is different to holding your assets in USD. The latter does not involve any sales of TRY. The name for USD/TRY is a currency pair. You are correct that if the TRY depreciates by more than the interest differential, you will have a profitable trade. However what if the interest rate is 10% or more? Are you sufficiently confident about the future depreciation of the TRY? What if the central bank raises interest rates to 15% or 20% or 50% ? .
It probably will - but this is adding two extra layers of complication. First, the TUR correlation with USD/TRY is not 1. Second, buying puts involves paying premium which decays over time. .
No, the correlation isn't 1. Did I say it was? But if TRY crashes, so will TUR. Re 'paying premium,' yes there's 'decay,' but there's also movement in the underlying. That's why options are worth money. Anyway, most US retail investors don't have a way to play TRY directly. TUR is close enough for government work.
Turkish Lira Tumbles As Erdogan Blasts Interest Rates Are "Mother Of All Evils" https://www.zerohedge.com/news/2018...an-blasts-interest-rates-are-mother-all-evils Turkey election on Sunday June 24 https://en.wikipedia.org/wiki/Turkish_general_election,_2018 Second round, if necessary, to be held on 8 July .
"Turkish Lira Crumbles After Erdogan Says He Will "Take Responsibiliy For Monetary Policy"" https://www.zerohedge.com/news/2018...ys-he-will-take-responsibiliy-monetary-policy EURTRY at 5.2757 USDTRY at 4.4380 Both have moved to new all-time (TRY) lows in the last 24 hours .
Haha, I dunno m22au, have central banks ever raised rates as high at 50%? But if they did, wouldn't that literally crush their economy very, very quick, meaning you might want to short the heck out of it?
""God Help Turkey": FX Confiscation Rumors Launch Lira Meltdown As Yields Explode" https://www.zerohedge.com/news/2018...on-rumors-launch-lira-meltdown-yields-explode EUR/TRY now at 5.3934, with the TRY about 2% lower than Friday .
In early May, Argentina raised their interest rate to 40% "Argentina raises interest rates to 40%" http://www.bbc.com/news/business-44001450 While this is less than 50%, the point still stands - central banks can tighten monetary policy severely, which can cause losses for those betting against the currency. Short the heck out of what?
Yeah, and Erdogan is so radically against raising rates, you think he'll allow an interest rate hike of that magnitude?