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Currency Options

CURRENCY OPTIONS TRADING

  • Currency trading is assumed to be over four trillion dollars a day and it continues to grow at a rapid pace. There is lot of money to be harvested from this as traders. Substantial profits can be made with these trading plans. When a trade crosses the country’s borders currency needs to be converted from one to the other. When cross border trading takes place and currency contracts are used to protect the value of the products. These are traded through forward contracts and currency futures etc. Currency options are part of the portfolio of asset managers and hedge funds.
  • Currency options are traded through many platforms. Interbank currency trading, over the counter trading and exchange traded currency options.
  • In this program we trade exchange traded currency options also called currency futures options. The traders act as speculators in the market and provide liquidity.
 
 

WHAT ARE CURRENCY OPTIONS?

This is not a full guide to learning options trading. Terminology necessary to trade currency options in this trading plan is given in this chapter.

Currency futures options are nothing but right or obligation to buy or sell currency futures contracts (bundled to fixed amounts of currency and certain periods of time) for an amount money called premium.

The following are the single contract amounts for three major currencies which I trade. The liquidity is very high for these currencies.

EUR/USD = €125,000                                     each 0.0001 move ?? is $12.50

JPY/USD = ¥12,500,000                                 each 0.000001 move?? is $12.50

 


FURTHER CONTRACT SPECIFICATIONS CAN BE OBTAINED FROM WWW.CMEGROUP.COM/FX

These specific contracts expire at quarterly time intervals March, June, September, December and also the front months.

Interbank currency options can be bought and sold for any amount and time periods but needs to come up with larger capital investments to trade with the banks or over the counter market (OTC).

The currency futures contracts I trade are at the exchanges which are regulated

market places. The third party risk is completely eliminated with this.

TERMINOLOGY TO REMEMBER FOR THIS PROGRAM:

WHAT ARE CURRENCY OPTIONS?


Buying a call option = right to buy the currency at a fixed strike price

Selling (writing) a call option = obligation to sell the currency at a fixed strike price

Buying a put option = right to sell the currency at a fixed strike price

Selling (writing) a put option = obligation to buy the currency at a fixed strike price.

Buying = long = means + a contract

Selling = short = means – a contract

When you buy an option = you pay a premium ($$) taken out of your account

When you sell an option = you receive a premium ($$) into your account

Selling a call option = at expiration of time period you are short (sold) a futures contract

Selling a put option = at expiration of time period you are long (bought) a futures contract

 

This is the basic terminology you need to know for trading currency options in my book. There are lots of books available to read on options. www.optionseducation.org

I want to make this as simple as possible without going through all the options talk.