(Possibly) A Nice Little Trade...

Let me jot this down before I forget it. I think all kinds of carry trades this year will be unwound, but not before the marketplace has a chance to see what Helicopter Ben is really up to. Until then, it's perfectly alright to have something like this: short EURISK (euro-icelandic krona which is up 8% in the last 2 days because of a Moody's downgrade) against long some out-of-the-money yen calls (against the $). ISK (the Icelandic Krona)'s carry is something like 8%, which in the short-term is going to compensate investors for the risk of being long the krona against the euro, especially after a big, big ISK selloff as the one which we saw in the last 2 days. Should anything happen though, the cheap out-of-the-money yen calls should provide adequate protection against a more sustained liquidation of carry trades, because the first major currency to benefit from the carry trade unwinding is going to be the yen.