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Intermediate Trade: The British Pound ETF

It's do or fade time once again for the British pound.
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The Trade: buy 1 FXB December $128 put and sell 1 FXB December $123 put for a 1.15-point debit.

Now well into 2017, the British Pound continues to deal with its still alive, and not-so-well managed, Brexit mess. So much uncertainty hangs and revolves around the "what-ifs" that remain unanswered due to complicated nature of the process of leaving the European Union.

The Currency Shares British Pound Sterling ETF (FXB) was trading above the $145.44 level on June 23 2016, the day of the EU referendum, versus $128.43 at the close on Friday. That's a fall of 11.7%.

Great Britain's best stock market index to follow is the FTSE 100. That major index is up around 10% since the Brexit vote in June 2016. In fact, the FTSE 100 index of large-cap, internationally-exposed British companies has acted as the best hedge against the weakening pound. That's because most of the companies in this index export a lot of their output, or have sizable operations abroad.

Do note, however, that the PE Ratio of the FTSE 100 is a ridiculously high 35, which, given the Brexit chaos, causes one to wonder about the sanity of money managers who own stocks over the pond.

Going back to the currency, over the past 52 weeks the FXB has traded between $117 and $130 (rounded), which is one massive trading range for a currency ETF. Since the Brits are the first and maybe the last to leave the relatively young EU, chaos continues to be in the trading mix for both their stock market valuation and their currency.

Technically, FXB has a rising one-year stochastic and RSI. That rise began from a low of $124+ just a few weeks ago (on Aug. 24). However, FXB is rapidly approaching a declining trendline that begins at the $169 top/peak marked three summers ago. Thus, as I read the FXB chart, it's do or fade time once again for the British pound.

The trade tactic I prefer now for FXB is the near the money, bearishly biased vertical put spread expiring in December.

The trade is as follows:

-- Buy 1 FXB December $128 put;

-- Sell 1 FXB December $123 put for a 1.15-point debit.

The suggested target to close for a gain is a bid of $1.65 and the suggested target to stop out the trade is a bid of $0.65. Best to scale into the trade using limit orders.

At the time of publication, Skip Raschke held no positions in the stocks or issues mentioned. Please be advised that shorting stocks or doing options trades can entail increased risks and might not be suitable for all investors. Consult your financial adviser for details.