Options and momentum

Financial Trading is full of risks and inflicts a lot of psychological pain on those looking for quick money .

Risk-averse investment or even the concept of risk-free savings and free-of-cost banking services era is dead.

Financial trading is like preparing for a sport, or performing art or a practising profession.

Yet, highly motivated people have found a way with limited financial resources and determination to make it in financial trading.

No harm in sharing my experience here.

As a beginner I got into spot trading and soon started feeling that it is affecting my psychology.

On the suggestion of a friend (who later became my mentor), I moved to BUYING of options. Kept away from SELLING of options .

The friend told me you can learn trading by buying a lottery ticket or if you have deep pockets and mental agility to face loss of money or temporary loss (drawdown) then run a lottery business by selling options.

That happened more than 35 years ago.

Now I enjoy screen-based futures (spot) trading because I am able to assess the birth of momentum intuitively (using my brain signals) and exit within a few minutes most of the time or exit by day close. This took me years to input my brain with strongly filtered information and output was by way of practice and instant decision making.

It has taken a few decades of self-training to turn this kind of momentum trading into a habit.

It is exactly like turning a fitness or sports exercise into a habit that sticks.



The exercise revolves around just four rules embedded in the mind:

when to trade,
when not to trade,
when to enter and
when to exit.

Rest is made up of how to of executing transactions in a cost-efficient manner.

I have studied hundreds of Financial trading probability studies (with me knowing only the Excel basics) as part of the training to let my brain absorb unconsciously (be inputted with) the repeatable momentum patterns that occur. Outputs influence my discretionary momentum style of trading.

I shifted to trading spot after almost 7 years of BUYING options. 7 years in terms of 15 minutes a day. total 120 hours in 7 years.

Why buy options?

1. I enjoyed buying Options mainly for the reason that it was and is the only low-cost (in terms of investment and risk) self-training mode that helped me train by trial and error method and focussed on how to assess momentum and time the entry at a known defined risk cost.

2. Since I was quite busy with my profession/business, I did not want to go through psychological pain of seeing drawdown nor attract any margin calls which was another reason I liked the suggestion given by the friend.

I could easily trade even with US$500 capital by buying an EU futures options contract outright for one-time investment of maximum of 40 pips (one pip tick value is US$12.5). I used to buy out-of-the-money options for 15 to 20 pips for short term momentum burst target of 20 to 50 pips. Sometimes I could make 5 times of the money and much of the time lose most of it.

At the end of the day , you were a nett winner if you continued to trade regularly. I traded just one of the two symbols of currency futures options only at a time. EU or UJ.

Expectancy = (Probability of Win * Average Win) - (Probability of Loss * Average Loss) is what matters really. Not risk to reward kind of metric applies here.

In Buying of Options, start of Momentum is important. Going past the winning post is not that important.


3. Options trading is a like a horse race when stakes are raised by both buyers and sellers based on the start taken by a horse irrespective of when winning post is hit or not.

A buyer has to raise betting amount while a seller is more than willing to accept higher priced bets.

As a buyer you should never wait for the finish line and must get out as quickly as possible with a reward (to augment winning kitty) or without reward (to save money for next try)

Unlike spot trading, you can't afford to wait for more time even when the direction of the trade is totally in your favour. You are up by 20% in terms of direction, but if you wait for another day, without the trend changing any direction, you might see 40% down next day.

It is the TIME value or implied volatility (market sentiment ) that counts. Not continuation of the direction. You are aiming to get out with maximum time value and volatility favouring your trade.

Why choose Buying of Options as the primary tool to get trained in timing the market after assessing momentum?

1. You can spend not more than 15 minutes daily on watching the screen.
2. You can do it for years without affecting your daily life routines.
3. You learn the concept of volatility and Time value.
4. You learn how market gets excited or dully before the known news triggers happen or afterwards.

Learning curve is quite short if you choose to skip details.

Just understand what is Call and Put.
Call is you are expecting Price to go up .
Put is you are expecting Price to drop.

If you think the price is going to go up, just BUY CALL.
If you think the price is going to drop, just BUY PUt.

There is nothing to sell like you do it for spot trading for maximum profit.

In spot you sell an asset without owning it and hoping to make money by buying back at a lower price and pocketing the difference between sell price and buy price as your profit. In spot, you are taking undefined (infinite risk) to make infinite money.

In options, sellers take infine risk for LIMITED profit.

In buying, your risk is defined before you trade. In options, you buy or sell outright by paying full price of the options.
Not less, not more. You can liquidate it any time during official option market hours.

Chicago Mercantile Exchange (CME) provides a free simulation tool you can use it.

https://www.cmegroup.com/trading_tools/simulator

Avoid any video lessons trying to teach you on how to sell options. It will confuse you .

Just master BUYING of options ONLY.

If you know basics of trading, you should be on your feet within an hour of reading the material and watching videos.

Web is full of material on selling of options. Don't even bother to take a look anything to do with Selling of Options.

I will find some good videos explaining how to day trade futures options.

Since FF does not allow posting direct links of Youtube videos I will be posting only the keywords.

ES Futures Options - A Better Way to Daytrade the Futures Markets


Unfortunately, I don't have much spare time nor I want to help those who are not strongly-motivated to learn, I won't be hand-holding.
Sorry folks.

My main objective it to help and provide active help to pensioners and retirees . For sure, I know within six months of practice, they will be able to make passive income for themselves.

It will also keep their minds engaged and kicking.

Bought Options provide you leverage that will not cause you psychological pain

Before you begin to trade buying of options, please keep the reality of life in view.
It will have a very long-term effect on your self-training particularly in the initial stages.
You have to be very selective about the information or mentor that can influence you.

You will always come across technicians or educators who can analyse charts in hindsight but
have no guts to do real trading. FF is full of them.

I learned mostly by trial and error and by listening to real traders.

In my case I was a financial journalist trained to filter information and absorb (input) in such a way that I can explain (output) it simply.
So I had some kind of ability to self-train by trial and error. But a strongly-motivated person can also go this way.

Those looking for easy solutions don't have the mindset of getting trained.

You can do likewise by looking for passionate real traders who are sharing information without any agenda.
You treat anyone a real trader who has at least Trading Explorer for real or demo trading to show though real traders don't have time to establish their credentials nor the inclination to teach people other than those having strong motive, like FF real trader Brixen.

But don't fall for signal scams perpetuated by some of them having trading explorer. In fact, most of the ones that show unrealistic returns are coming
from sales people working for brokers using their company server to supply false information. It is quite easy for a broker to fake records.

If you pay someone you are inclined to believe that you are getting some sort of truth about trading. In most cases, you won't get to know the truth because trading can't be really taught. It is meant for pracitce. So please keep away from mentors or educators who are looking for money. Honestly, they have nothing to offer you. It is better you use the same money to train yourself by buying options.

Spot Leverage vs Options Leverage

Spot trading veers around leverage. Have you known any person who purchases full contract value with own money? Hardly any.
A standard contract of EU costs $100,000. You have to have that kind of money to buy a spot contract.

At least for 5 years you should not use leverage offered by brokers. Why? Because it inflicts psychological pain on you particularly when you are under-capitalised. Before you trade, you never know where you will end up with losses.

But in case of options, the Exchange is giving you an opportunity to buy Options at a fraction of price. If the option price is 10 ticks you can buy it for $125.

SELF-AWARENESS EXERCISE IS A MUST

Before you embark on trading as a source of passive income, you should be doing some self-awareness exercise or introspection of your own personality.

How much time do you want to spare for trading? Buying of options does not need more than 15 minutes in a day.
If you want to day-trade, then you have to give more time for it.

How much money can you spare for learning of buying options trading that will not affect your existing lifestyle?

Can you skip a holiday, or a family dinner and save the money for trading?

Do you want to depend on your brain for giving you trading signals?

Do you want to depend on indicators and candle patterns to show you the way to enter and exit markets?

Do you know that trading is conducted in an auction style in a regulated exchange where buyers and sellers can't manipulate prices except using volumes to increase or decrease prices?

So what makes you think the direction of the market can be predicted? Don't believe the technical analysts (also known as technicians). It is their belief (with no proof) that they can predict market direction in a market which can't be influenced by forecasters or technicians.

In my case, I have used hundreds of probability studies done based on historical trades so that I can find some repeatable patterns that occur frequently.
And be in a position to identify them when they appear during the time of trading and then build my own database in my mind of what works for me and what does not.

Which technician or indicator can give signals for such a market full of uncertainty?

Attached Image (click to enlarge)

Not even analysts of big institutions can say for certainty where the market is headed for?

Buying of Options help us train our mind and prepares a trader on how to react to the market movements rather than getting involved in predicting the direction of the market.

Momentum trading is akin to horse race betting.

Once the race starts, bets rise and fall even though the horse owner has told his/her friends that the win belongs to them and most of the time has to hide his/her face from the friends.

Buying of Options facilitates acquisition of Momentum Day Trading skill

Options work with volatility and time value to find opportunities in short-term uptrends.

When momentum is low, options are bought and liquidated in short-term trends whether in up or down direction.

Risks involved are:

1. Buying too early,
2. Closing out too late,
3. Missing Key price trends
4. Misreading future price volatility also known as implied volatility.

Options buying will ultimately equip traders with skills necessary to enter a spot or futures market .

Momentum spot or futures trading requires reacting to short-term, news trading and Market open and close hours. It also requires identification of when world markets move as one. Whether the markets move up, down or sideways, they are likely to be moving together.

https://www.nytimes.com/2011/04/03/y...ey/03stra.html

Momentum day trading is simple to follow:

 

1. When to enter into a position
2. How Long to hold it for, and
3. when to exit

The skill training needs a lot of practice to do. No pre-analysis of trend is required.
It involves buying at bottoms and selling at tops while watching the charts screen for your brain to act intuitively.

Futures Momentum Trading

The symbol for momentum trading has to be such that it remains volatile at least 30% of time on a daily basis to qualify for day trading.
I have found indices like Dow Jones 30 and DAX provide a lot of vol ideal for momentum trading.
On a daily basis 150 pips can be achieved by trading in six to eight instalments using discretionary hot hours decided by you..
Discretionary Hot hours can't be found by any indicator other than your brain.

For trading I found using any kind of technical indicators will confuse your brain.
Information indicators showing Swings, highs and lows works well.
Middle lines work well.
I have tried to find with the help of an algo trader whether middle lines produce more trading opportunities or not.
Yes at 50% of yesterday high low level, a lot of trades happen.
Similarly it is equally valid for 50% of ADR behaving same ways.

You need to take snap decisions to enter and exit in a matter of seconds and I found discretionary ways work well.

Know volatile hours are :

Intra-day: Market Open and Close hours, overlap of UK, US , or opening/ closing hours of Futures Options market
Week Days: Like for today is Friday. It behaves different from Monday or Tuesday or other week days.
Which months? Quarterly closing, or seasonals like Summer and Winter, etc.
Pre-pubic holidays days
Post- public holidays day
Pre- News times - which regular economic release news events really move market?
Post-New times - which one of the news events generate more volatility?

Buying of options provides a low-cost low-risk self-directed training medium to practice a most profitable skill before you shift to utilize it in itrading of spot or futures, choosing carefully volatile trading instruments.

Is buying options a good instrument for making regular income?

The answer is ; BIG NO, NO for the beginners. Huge Yes for the experienced or intermediate learner

Why?

Because you are starting with a handicap. You pay a premium so you start with a negative number the minute you buy options. You have to ensure that you generate enough income to cover the cost of premium and then your desired profit.

Why, then, am I promoting buying of options?

Because buying of options helps you train as a self-directed futures/spot momentum trader for day trading at a small cost, involving quite less money that that you pay for getting trained at the hands of educators.

Intermediate learners can try to exploit its trading potential rather than just using it as a mere training aide

If you want to make money out of buying of options, you have to understand the process of heating up a pot of milk and see until it reaches the boiling point.

Options as well as short-term day Momentum trading can be depicted like this.

Buying of options is like as if you are putting up a pot of milk to heat, seeing it boiling and exiting or waiting for the boiling to spill over with you losing option premium fully.


1. Buying OTM (Out of the Money) options

2. Waiting for momentum build up and exiting with realistic planned profit . In options terminology it has reached ATM (at-the-money) level quickly.

3. If you wait further and look for unrealistic (luck) profits then once in a while the boiling point is reached helping you with maximum profit. It is now considered as Deep-in-the-money options.


4. You wait until it overflows your OTM option expires worthless, you losing all premium paid for the option.




Options actually provide two streams of speculative income.

You can buy a low-priced OTM option for a small gain. It is trading for a limited purpose. For this kind of trading you are not particularly looking at a significant movement in the price of the underlying instrument than a change in the sentiment towards the volatility and increase in momentum.

For me , I am actually paying quite a small price to greatly multiply the power of my starting capital without having any margin facility or without paying any borrowing fees. With leverage it's possible to turn relatively small amounts of capital into significant profits. But options brokers mostly don't allow every trader to borrow funds to take a SELL position or write contracts.

Options contracts themselves are a source of leverage, and the exchange allows it when you buy options outright and they don't have to monitor your account. If you buy short-dated OTM options, the leverage can be anywhere from 100% to 2000%. while your risk is totally capped to the premium you have paid for buying it.

In any case you don't buy options unless YOU HAVE A FIRM DIRECTIONAL BIAS and have an idea about the probability of the time it will take to happen..
Please keep this in mind:

1. The whole purpose of trading for a small guy is to be right in direction since he/she lacks deep pockets or don't want to use them.
2. The whole objective of trading monthly expiry dated options is to get high leverage and only those who have skill of spotting quick directional momentum should go for it.

A risk-averse investor has to work on acquisition of prediction skills acquisition instead of relying on the money to generate an income.
Basically, you have to be clear as to the direction of the market and the time period it will last. The intention is to hit the outlier quickly and without suffering the psychological pain. An outlier is a statistical term. It refers to observations in a distribution of data that deviates from the normal.

Don't get put off by options terminology jargon.

It is not necessary to know anything about options selling or options selling strategies.

When to buy Put or Call is the only basic strategy you need to understand and practise.

Contracts. Calls. Puts. Premium. Strike price. Intrinsic value. Time value. In, out of and at the money.

This is the language of options traders — a jargon-riddled dialect of traditional Wall Street-speak or part of shop talk.

Don't get put off by this jargon. And avoid learning anything related to Selling of options until a year has passed.

Becoming conversant first requires learning a few key terms.

Options contract definitions

There are four key things to know on an options contract:
1. Option type: There are two types of options you can can buy or sell:

1. Call: An options contract that gives you the right to buy asset at a set price within a certain time period.
2. Put: An options contract that gives you the right to sell asset at a set price within a certain time period.

2. Expiration date: The date when the options contract becomes void. It’s the due date for you to do something with the contract, and it can be days, weeks, months or years in the future.

3. Strike price, or exercise price: The price at which you can buy or sell the asset if you choose to exercise the option.

4. Premium: The per-asset price you pay for an option. The premium consists of:

1. Intrinsic value: The value of an option based on the difference between an asset's current market price and the option’s strike price.
2. Time value: The value of an option based on the amount of time before the contract expires. Time is valuable to investors because of the possibility that an option’s intrinsic value will increase during the contract’s time frame. As the expiration date approaches, time value decreases. This is known as time decay or “theta,” after the options pricing model used to calculate it.

Terms to describe what an option is worth

When it comes to describing options performance, saying “up,” “down” or “flat” doesn’t cut it. At any given moment that an options contract is in play, it is one of three things:

In the money: This refers to an option that has intrinsic value — when the relationship between asset price in the open market and the strike price favors the options contract owner. When the asset price is higher than the strike price, that’s good news for the owner of a call option. A put option is in the money if the asset price is lower than the strike price.

Out of the money: When there’s no financial benefit to exercising the option, it’s called out of the money. Practically speaking, an out-of-the-money option makes buying or selling assets at the strike price less lucrative than buying or selling on the open market. A call option is out of the money if the asset price is lower than the strike price. A put option is out of the money when the asset price is higher than the strike price.

At the money: When the asset price is roughly equal to the strike price, an option is considered at the money. It is an equilibrium.

Last two terms describes types of option traders. So when you come across these terms don't get confused.

Holder: Refers to the trader who owns an options contract. A call holder pays for the option to buy the asset based on the parameters of the contract.
A put holder has the right to sell the asset.

Writer: Refers to the trader or investor who is selling the options contract.
The writer receives the premium from the holder in exchange for the promise to buy or sell the specified assets at the strike price, if the holder exercises the option.

Besides being on opposite sides of the transaction, the biggest difference between options holders and options writers is their exposure to risk.

Remember, holders are purchasing the right to buy or sell shares, but they aren’t obligated to do anything. Their contract grants them the freedom to decide when — or if — to exercise the option, or to sell the contract before it expires.

If they end up with an out-of-the-money option, they can walk away and let the contract expire. They lose only the amount they paid for the option (the premium) plus the cost of trade commissions.

Writers don’t have that flexibility. For example, when a call holder decides to exercise an option, the writer is obligated to fulfill the order and sell the asset at the strike price. If the writer doesn’t already own enough assets, he/she will have to buy assets at the going market price — even if it’s higher than the strike price — and sell them at a loss to the call holder.

Because of the unlimited downside potential, I recommend beginners stick to the buying (holding) side for at least a year.

You can try a free paper trading account provided by a broker or use CME simulation platform whose link is provided on this thread.
You can find by Google brokers that are offering free paper trading accounts.

Please talk about options brokers as well if you have any information

I use Interactive Brokers which offers both Dow Jones (YM symbol) and mini Dax (ODAX) options. A lot of other brokers also offer both instruments. Buying of options require no margin deposit, but fufilling of minimum account opening conditions of the brokers.

After recent introduction of micro contracts, option volumes have increased substantially.

https://www.cmegroup.com/trading/equ...i-options.html

What you should be looking for when using Bought Options for real time live training purposes?

1. Use MT4 CFD platform for dummy trading of symbol for analysis purposes

 

1. Recognize High Profit Momentum Patterns using information indicators that use horizontal lines or draws boxes to show Daily high low median , top and bottom swings, ADR 50% Fibo scale or Yesterday High Low and Median

1. Where to get in and Where to Exit as as if you are going to trade spot transactions

2. Shift to Calls and Puts Options chain that shows essential information about option premium quotes.

 

1. Pick Strike Prices and Expiration Dates AFTER having determined viable spot trades
2. Buy Call option if you have bullish view about the market. Which means you have bearish view about the Put option.
3. Buy Put option if you have bearish view about the market. Which means you have bearish view about the Call option
4. Buy both Call and Put option if you have a very strong view about the market taking a strong turn in any of the directions. Up or down.
5. Remember unlike spot trading , Time (theta is the jargon) value of option is the key to your profit.
6. Quick exit is very similar to what you would do for trading momentum on the sport market

The option chain looks like this. You have to do your own study to understand the option chain terminology. using CME education site or a broker's education site. Please don't depend on my hand-holding.

3. Create Options Orders

In the Option Chains, click the bid price of the selected option to create a trade for buying call or Put or both.
– click on the ASK price of a call or a put to create a BUY order
It is as simple as that - very similar to buying on a spot trading platform.

You can use this site for understanding of all the terms of an option chain which is a term for Option Price quotation.

https://www.cmegroup.com/education/c...n-futures.html

Bought Fx futures options deliver a bonanza

Buying EU of JPY options with risk capped at the bought price . No margins are involved so don't expect any margin calls.

The performance sheet shows:
Don't touch symbols other than EU and JPY if want to buy or sell options. Buying Options is good for small traders who strongly believe in Positive Expectancy Returns.

Selling options require margin deposit, can expect margin calls, so need margin buffer (for volatility) in the capital account.
If I have to keep a margin deposit, I prefer trading of spot or futures rather than sell options if I have no patience to wait for 120 days to see money falling from the sky in the last week.

120 days duration only can give you returns of 60%+ a year.
Short duration options premium amounts are worth only for Hedgers and not speculators like me.

Those having the itch to trade or gamble or get into action on impulses should not touch FX futures options.

Stock options are good for someone who has fat pockets, follows earnings, or has insider information.

A refresher course on buying options.
No discussion of Selling of options until Buying of Options is mastered.
Underlying asset means trading symbol.

If you are a Fx trader, you should understand a couple of technical terms used by Options platforms.
It is very similar to spot trading if you stick to Buying of options. Your risk is capped at the price paid.
You can always exit with some loss if you don't wait until the expiry date of options.

If you are a Fx trader, you should understand a couple of technical terms used by Options platforms.
First: What is Call and Put.

Second instalment of technical terms
Moneyness is a new word.

Strike Price
It is a price at which the holder of an options position can buy (in the case of a call option) or sell (in the case of a put option) the underlying security when the option is exercised. Hence, the strike price is also known as the exercise price.




When you open positions:
When you buy an option = you pay a premium ($ $) that is taken out of your account.

When you close positions before the expiration date of options
It is not necessary to hold the options till their expiry. You can buy anytime before the expiration date.
A buyer can offset or liquidate the positions by selling in the market.

When the open positions expire in the money
If you have bought a call option = at the expiration of time period you are long a futures contract
If you have bought a put option = at the expiration of time period you are short (bought) a futures contract


Class, style, and Expiration

A European-style call/put option places a restriction on the holder to exercise the option only on the expiration date. American-style options place no such restriction. The terms have no connection with geography. CME offers only European style options on five products: British pound, Canadian dollar, Euro FX, Japanese yen, and Swiss franc futures contracts. There is no risk of early exercise with European-style options, which are automatically exercised if they expire in the money.

However whether it is American or European style options, the trader does not have to wait for the expiry date to liquidate the positions as long as there is liquidity in the market. Options on CME FX futures trade virtually around the clock on its Globex electronic trading platform and it is possible to liquidate the options any time.

Third instalment of technical terms
When buying an option, the trader pays a premium.

The premium price is calculated by a mathematical formula. A trader should not go into its calculation details. It is sufficient to know that the premium price is influenced by the changes in the price of the underlying asset, by the passage of timeand, and the market sentiment.

The premium of a Put option increases as the market falls. Why? Because the Puts strike price becomes more attractive relative to the market price.
The premium of a Call option increases as the market rises. Why? Because the Calls strike price becomes more attractive relative to the market price.

Broadly, more Time to expiry date adds to the premium cost. Less time reduces the premium. Short-dated options have smaller premium quotes.
The market sentiment affects the implied volatility component of the pricing calculation, which keeps fluctuating.

Please note: Don't get confused between the selling of options and offsetting/liquidating bought options.
When we say selling, we are not referring to selling of options, that is , accepting the premiums offered by the buyers.
Bought options can be opened and liquidated.

Fourth instalment of technical terms

You are paying a risk premium for taking bigger exposure in time terms .
You are buying a position at current market price (called intrinsic value) and paying a risk premium for taking a time exposure (called extrinsic value)

Fourth (additional) instalment of Buying of Options technical terms

Intrinsic value and Extrinsic Value (also known as Time Value) of In-the-money (ITM) options
Futures and Options are two different trading instruments and their prices will also be different.
Futures prices are quoted in terms of the market price.
The prices of options are affected by changes in the price of the underlying currency pair , by the passage of time and the market sentiment or the power of expectations. The technical term used for this is called Implied Volatility.
Options price is composed of two parts, one of which is intrinsic value that comes into play only when the exercise price of options is more than the market price of futures. The intrinsic value gives an idea of whether the future price of the currency is undervalued or overvalued.
In other words, intrinsic value only refers to in the money options. A negative intrinsic value would mean that the options is either at the money or out of the money.
The second part is called Extrinsic value , also known as time value. Extrinsic value is calculated as the difference between an option's market price and its intrinsic value. The buyer does not get any extrinsic value when the option expires. Time value will be zero once the option expires.
The method used to calculate intrinsic value will vary depending on the type of option that has been bought – in call options, it is the price of the underlying asset minus the strike price, whereas in put options, it is the strike price minus the price of the underlying asset.
Assuming the Euro Futures price is 1.08235 (similar to a spot price) the Strike Price of a Call is 1.08500 and the premium (ask) is 0.01390 points for the call. The price is more than the underlying price which means the call is out of the money.
The premium has no intrinsic value.
If the Euro Price is 1.08265 and the trader wants to buy the call at a strike price of 1.08000 and the premium (ask) is 0.04000, then the difference between the two is: strike price (1.08000) - the underlying price (1.08265) = 0.00135
Extrinsic value will be: 0.01350. Intrinsic value: 0.00265 when the option premium value is 0.04000.
The term intrinsic value refers to the amount of money assigned to an asset as determined through fundamental analysis. Intrinsic value can be determined by summing the discounted stream of future income derived from an asset.
Example of Put Options: If the Euro price is 1.08235 and the trader wants to buy put at a strike price 1.08100 and the premium (ask) is 0.01190 points for the put . The price is less than the underlying price which means the put is out of the money. The premium has no intrinsic value.
If the Euro Price is 1.08265 and the trader wants to buy the put at a strike price of 1.08400 and the premium (ask) is 0.03900, then the difference between the two is: strike price (1.08400) - the underlying price (1.08265) = 0.00135
Extrinsic value will be: 0.02550. Intrinsic value: 0.001350 when the option premium value is 0.03900.
The intrinsic value of any out-of-the-money options , be it a put or call, is zero.

Fifth instalment of Buying Options technical terms

Calculation of Profit & Loss ( P & L)
The profit or loss for each contract is done taking into account the contract size, tick size, current trading price, and what you bought or sold the contract for.
The profit/loss on a trade in the currency futures is calculated as the difference between the entry price and exit price (in ticks), multiplied by the tick value, and multiplied by the number of contracts taken on the trade.
For example, if the strike price of a EURUSD call option is $1.08500 and the price of the underlying futures is $1.09000, then the intrinsic value of the call option is $0.00500 or 5 ticks or 10 half-ticks.
Same calculation as is done for calculation of profit/loss for CME futures is does as well for the CME futures Options.
The value of a CME contract for EURUSD future option is US$125,000. Each half-tick tick value is USD6.25. If you gain 200 half-ticks (or 100 pips in fx spot terminology) on expiration your profit is USD1,250.


How can you settle Futures options and get cash?
For trading Exchange-traded Future Currency Options, the actual physical transaction of the currency pair is not required and you do not have to exercise the option to receive your profit until the expiry.
Instead of settling ITM options with cash, you will first get delivery of futures. If needed, you can then liquidate futures for a cash settlement.
Instead, the running profit or loss of the option position is calculated for you and when you close the option trade, or it expires OTM, cash is credited to your free balance (if the option has premium value).

Trades can be closed any time before expiry (during trading hours) to lock-in profit or reduce a loss.
Very rarely a trader takes delivery of the currency futures for speculating further in the Futures Market on the movement of the currencies. Over 95% of options transactions are closed out with an offsetting sale or purchase of the same option, or options expire without any remaining value.

Final installment of buying Options technical terms

STRADDLE: If you have no bias for direction, but have a view of marketing moving strongly in any of one direction that can cover the investment costs of Buying both Call and Put at the same and still deliver you the profit.

Such not-so-often opportunities occur when strong news about the change of US president, or economic conditions happen.


Trade the Currencies You Want
Find currencies across key emerging markets and all the majors, including these most actively traded pairs.
https://www.cmegroup.com/trading/why...x-futures.html



As shown in the previous posts, for speculators, the liquidity of the market is important. Three assets: Euro USD, Jpy USD (in options it is not Usd JPY) and Mexican Peso USD have good liquidity .