A Kelley Trade in action

Important quote from this article about Brazilian tax policy.

"Brazil’s success in curbing the rally in the real by imposing a tax on foreigners’ purchases of stocks and bonds is a “scary” and “dangerous” precedent, said Citigroup Inc. equity strategist Geoffrey Dennis.
...
“Part of the success of the tax comes about because there’s an implicit threat by the government to actually increase the tax if the currency continues to appreciate,” Tony Volpon, a Latin America strategist for Nomura Holdings Inc., said at the conference. “The government has had a surprising success in putting the fear in the carry-trade community.”

So, the government has guaranteed, in some uncertain future, a bottleneck in Brazilian assets. So the market develops a trade that adds measurement precision between today and the day when assets are blocked. A set of hedges.
HT DeLong