Nancy Davis Makes the Bear Case on Brazil

Featuring Nancy Davis

Nancy Davis of Quadratic Capital Management says the upcoming Brazilian election gives her ample reason to short the emerging market. She explains how she’s using options to bet against a popular Brazil ETF in this interview with Brian Price. Filmed on May 14, 2018. NOTE: An earlier version of this video contained erroneous information about the trade in the conclusion and in the final chart.

Published on
17 May, 2018
Topic
Emerging markets, Trading, ETF
Duration
15 minutes
Asset class
Equities
Rating
12

Comments

  • DI

    David I.

    6 7 2018 22:31

    0       1

    I am a beginner in trading options and still learning but have taken this trade.

    Could anyone please advise on possible actions to take with this trade? Would it be an ideal time to turn this into a put spread?

    And could we expect to see higher moves in EWZ in the coming months.

    Thanks for any advice

  • DI

    David I.

    6 7 2018 22:31

    0       0

    I am a beginner in trading options and still learning but have taken this trade.

    Could anyone please advise on possible actions to take with this trade? Would it be an ideal time to turn this into a put spread?

    And could we expect to see higher moves in EWZ in the coming months.

    Thanks for any advice

  • AG

    Abhimanyu G.

    18 6 2018 01:25

    3       0

    this has worked out beautifully - fantastic blend of theory + real world application

    more of Nancy please!

  • JC

    Joe C.

    11 6 2018 14:28

    3       0

    I agree with comments below on Nancy doing a longer-form video on Options trading. I know almost nothing about options and learned more about options from this video than most online resources I've found. "4 ways to win" is a unique take on how (put) options work... would love to watch a longer video on this topic alone.

  • RP

    Ryan P.

    8 6 2018 16:25

    0       0

    Why is EWZ Up today?

  • ND

    Nancy D.

    1 6 2018 16:24

    6       0

    To provide an update on this trade idea, the EWZ is down -14.2% in 20 days and implied volatility is up +4 vol points. The ATM put would be up over 400%.

  • aa

    ariel a.

    25 5 2018 23:09

    0       2

    Shallow pitch. 1Min for your reading pleasure :

    1) Inflation is the real only clear signal ->If the lack of investments from the last several years would now impede growth, then is trouble. Meanwhile, truckers fully indebted with a massive leverage on lories are idle in strikes and inflation is still dead.

    2) This Central Bank is, by construction, Hawkish - No questions.

    3) MDB can elect any president they choose. They vanished away PT party from all small towns in which voters tend to vote with 70 Approval rate to the incubemt party, its Coronel ( if you really want to play brl, read Celso Furtado)

    4 and final) If you really want to bet smartly against brazil, bet like locals and carry massive amounts of USDBRL 2mo 25% Risk calls, hoping that one day you feel a bit sloppy and a massive 10% move happens when they are 30 DTM😝😝😝

  • NJ

    Namit J.

    25 5 2018 19:53

    5       0

    Can we have more from Nancy please ?

  • CC

    Carlos C.

    21 5 2018 00:43

    1       0

    Didn’t the markets rally when Trump was elected?

  • zy

    zhang y.

    19 5 2018 16:35

    0       0

    What's the difference between shorting the EWZ etf and the put options of it and which broker offers the options?

  • AM

    Artur M.

    19 5 2018 09:46

    1       0

    I was looking for a long USD option long term play. Looked at EEM & UUP but see more assymetry in EWZ. Thank you Nancy. Hope you can visit us soon again.

  • CD

    Christine D.

    18 5 2018 23:10

    1       0

    Interesting idea but looking at the EWZ chart it feels about 1 month late to do this trade. Seems too risky now to buy put options in my opinion. I will do the opposite and see what happens. Good luck to everyone.

  • SC

    Shane C.

    18 5 2018 16:15

    2       0

    Nancy, this is a very intelligent and efficient short play. I love Quadratic's thought process regarding their trades. Being short the Brazilian ETF is intrinsically shorting the BRL as well (reducing a carry trade risk)

  • AG

    Anubhav G.

    18 5 2018 14:12

    1       0

    Why not buy a calendar spread ?

  • BF

    Brad F.

    18 5 2018 11:46

    6       0

    Nancy this is the best trade idea video I have seen yet. And thanks for replying to comments - I would love to see more active engagement with the community from RVTV and its contributors.

  • LK

    Lyle K.

    18 5 2018 01:49

    1       0

    One of my favorite people to see on RV....I love Nancy’s views and trade set ups just awesome!

  • EF

    E F.

    18 5 2018 00:48

    4       0

    full interview please

  • SH

    Steve H.

    17 5 2018 21:29

    1       0

    Seriously impressive.

  • PB

    Pieter B.

    17 5 2018 20:12

    2       0

    I found this a really professional video! Great Q&A! Massive thanks!

  • GL

    Guillaume L.

    17 5 2018 18:29

    2       0

    Assuming skew is too flat, I understand tou ATM puts will benefit from increased call skew if your direction view realized itself but wouldn't you want a touch a way otm puts in there so that they benefit form rising put skew? (for extra kicker)
    Very good video. Cheers.

  • rr

    rlw r.

    17 5 2018 17:16

    10       0

    Brian is a great addition to Trades, thks RV.

    RV needs more Nancy on Options.

    A very useful 15 min!

  • M.

    Milton ..

    17 5 2018 17:04

    1       0

    Hey everyone - Unfortunately there was a mistake in the original conclusion to this video. The expiry and price of the option were not correct. Thank you for bringing this to our attention.

    Over and out,
    Milton

  • WG

    Wade G.

    17 5 2018 16:38

    0       0

    So to JG's remark below, I think the issue here is that pricing and break even point provided by the host in the last minute are disconnected from the pricing I see and assume JG saw for the options. Not sure when this was filmed, but my chart shows these options never trading anywhere near the $.60 price provided by the host. Ms. Davis reiterates her rationale for liking the option pricing below, but that's not the concern here. There's confusion based on the details provided in the last minute of the video and the market prices a couple of us are seeing. Good interview, btw.

  • JG

    John G.

    17 5 2018 15:07

    0       0

    The 5 and 7 month at the money put options on EWZ look expensive to me. I am confused.

  • JM

    Johann M.

    17 5 2018 14:39

    0       0

    Where does one get access to such cheap options.

    The current Nasdaq option chain for EWZ October 2018 for a strike price put is trading at $ 3.45 to $ 3.95?

  • JS

    Joel S.

    17 5 2018 14:35

    1       0

    The problem with this trade is that locals are actually buying stocks and buying USDBRL to hedge it. So one thing is offsetting the other. I don't know if the Bovespa will continue going higher, but giving so many players (particularly local hedge funds, which are big in Brazil) have this trade of long Bovespa + long USDBRL, an unwind of this could produce mediocre returns giving the offsetting nature of the trades. USDBRL was around 4,20 at the high of the Brazilian crisis, with Dilma being impeached, tremendous twin deficits and GDP plummeting. Now USDBRL is 3,70 and we are in a very different scenario. Hence unless we see some big shock i don't see the ccy going much higher here. The election play is still far away. A bit easier to see a stock market correction led by the s&p. But in that case EWZ might not be the best vehicle.

  • EQ

    Eduardo Q.

    17 5 2018 13:18

    1       0

    This came in the right moment. I hope some of you can help me figure this out. She mentions the Interest Rate differential between BR and US. Yesterday I was doing a relative Analysis for MXN, COP and BRL vs USD. Surprisingly... If you draw Interest rates and bond yield differentials between any of these 3 economies and the US vs the respective Ccy pairs, IR and BY differentials depict a negative correlation with the currency pair. That is, a (10Y USy - 10Y BRy) spread "should be" positive correlated to USD/BRL but that was not the case it was indeed positive correlated to the inverse of it BRL/USD. Same happened with USD/MXN and USD/COP. I even went deeper and for USD/MXN I calculated, GDP and BOP growth differentials. Both yielded the same outcome. Normally, performing this type of analysis with DM currencies, it works as it is supposed to work.

    Is there a reason for that?... I mean they are emerging markets, should they be treated differently?... y view at least on Yield differentials might be that when bond yields in Brazil rise that is sign of carry trade unwinding and therefore it would lead to a depreciation of the currency. I might be right, but for IR, GDP and BOP differentials I have no clue.

  • NJ

    Namit J.

    17 5 2018 12:54

    0       0

    Excellent!

  • RD

    Rodger D.

    17 5 2018 12:27

    0       0

    Where are November options listed?

  • KE

    Kathryn E.

    17 5 2018 11:51

    20       0

    Amazing understanding of option trading. I'll be extremely interested in a multi video option training from Nancy!

  • PU

    Peter U.

    17 5 2018 11:42

    7       0

    very good! She also resembles Lady Gagga

  • Nv

    Nick v.

    17 5 2018 11:41

    1       0

    Big fan.
    Great idea and Brazil is a big overweight in EM - crowded trades....

  • JS

    John S.

    17 5 2018 11:04

    6       0

    Best so far