Currency options trading when markets lack direction

Trading options not only limit your losses to the outlay cost of the purchased position long or short, but also can post significant gains if purchased at the write time. Essentially option writers in the market write options to receive option premium income on the basis that they expect that the option will not be triggered rather that prices would move in the opposite direction and the options themselves would expire worthless. Were life that simple then we would all be millionaires now wouldn't we? Options writers may collect little premium but the risk of a price reversal exposes them to unlimited risk if the price moves sharply and adversely against the option writer. But that is the calculated risk of options writing based upon probabilities that prices would drift in the direction anticipated. Small time traders with portfolios under $100,000 under management may take use of options with a precalcualted risk thus determined.

In times of uncertainty when market prices tend to drift in sideways channels several traders look to options as a means to position a trade entry. For example the EUR/ USD in spite of great employment data last friday 8th May 2015 didn't seem to give traders what they needed to take a speculative short position on the EUR/ USD. In times of uncertainty options could become a pretty handy cost effect entry point, particularly if weeks of narrow trading range is followed by high volatility and the potential for a spot position to become over-run by whipsaw trading action. With the EUR/ USD currently sitting at 1.11 a trader looking for direction may place a call option at 1.14  and a put option at 1.08 as suitable deviation entry points around the current mean and which if broken can indicate a new price momentum to carry the winning option on a run. The alternative option can be sold at a small loss or expire worthless.

The use of options mitigates a position from being over-run far beyond the stop loss order.

Before the small trader had recourse to currency futures options on exchanges. But now increasingly spot fx platform providers are incorporating options trading usually taking up the counter-party position themselves in an OTC product creation to provide traders with recourse to hedging.  

For further study of options trading to hedge your currency positions please study the following platform - 

http://binary-en-option.com/

Academy videos and books -

http://www.anyoption.com/trading-academy

Never enter into any trading plan without careful preparation of risk management assessment.In volatile markets having a plan B is completely essential for a successful trading career. 


Pieter Bergli - DeLoren Trust Holdings

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Futures and Options trading involves risks of losses. No representation is being made that any reader and account will or is likely to achieve profits or losses similar to those that are being discussed on this blog http://forexeducationperspective.blogspot.com/. The past performance of any trading system or methodology discussed is not necessarily indicative of future results.

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

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