Options on currency futures as a hedge? | Forex Factory

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Options on currency futures as a hedge?

  • #1
  • First Post: Mar 6, 2006 9:59pm Mar 6, 2006 9:59pm
I have some experience with equity options, but none with trading
options on currency futures as a hedge, but my understanding is
the nuances are about the same - greeks, etc. It seems to me that
if you open a spot trade with 2 to 4 week timeframe and open an
opposing call or put option on the currency future as a hedge, that
you would have almost a risk free trade. You can get up to 400:1
leverage on your spot trade and unlimited profit potential on your
call or put. The only downside I can think of is if there is not enough
volatility before your option expires or your spot trade consolidates,
which is unlikely since many currency pairs move 200 pips or more per
month. If anyone believes my assumption is not correct, please
set me straight.
  • #2
  • May 3, 2007 3:52pm May 3, 2007 3:52pm
this thread is kinda old but i just created a thread about the same thing. very similar anyway.
i suggest going long and short gbpusd with fx options. i've seen the statements of a very successful fund that does only this all month long several times a month. they make 10-20% a month on a 500mio account. That is no joke. they average this for 2 years.
i'll try to get a statement from my friend that invests there. i'll have to erase data that shows his name or info of any kind but i'll try to post here for experts to dissect and we can then copy this behaviour.
It really is that easy.
  • #3
  • May 3, 2007 4:28pm May 3, 2007 4:28pm
Quoting THE FxORCE
they make 10-20% a month on a 500mio account. That is no joke. they average this for 2 years.
Let's average 10-20% as 15%.

$500M * (1.15)^24 = $14.3 Billion. I think your friend meant 10-20% per year.
  • #4
  • May 3, 2007 5:47pm May 3, 2007 5:47pm
Quoting THE FxORCE
this thread is kinda old but i just created a thread about the same thing. very similar anyway.
i suggest going long and short gbpusd with fx options. i've seen the statements of a very successful fund that does only this all month long several times a month. they make 10-20% a month on a 500mio account. That is no joke. they average this for 2 years.
i'll try to get a statement from my friend that invests there. i'll have to erase data that shows his name or info of any kind but i'll try to post here for experts to dissect and we can then copy this behaviour.
Ahhhh, ok.........
10 - 20% a month? Imagine the premium on that position.........
  • #5
  • May 3, 2007 6:15pm May 3, 2007 6:15pm
Currency futures have interest rates built into the price, which is why you never have to worry about carry trades in that market. On top of that, the time decay of options not only depends upon volatility but current interest rates on the dollar as well (assuming you're trading CME futures). It may work, but I have a suspicion that all those interest calculations will eat into the profits of that leg of the hedge.
  • #6
  • May 4, 2007 9:12am May 4, 2007 9:12am
ok very good info Blue. thanks
nope guys sorry. they trade for the NBA retirement fund and people like steven spielberg. they do in fact average over 10% a month for over 2 years running. they do have 30% drawdowns but at the end of the month it typically ends up in their favor. the traders have been quoted saying, "we might have drawdowns every now and then. it's just a matter of time before we make money."
i believe they rely totally on gbpusd volatility. that's why they trade gbpusd vs eurusd which is more liquid.
for future responders: the info provided here is true. if you just want to take up space posting useless nothings then to stand in the corner and take up space there instead.
thank you to those who are open minded and intelligent.
It really is that easy.
  • #7
  • May 12, 2007 4:29am May 12, 2007 4:29am
Quoting THE FxORCE
i'll try to get a statement from my friend that invests there. i'll have to erase data that shows his name or info of any kind but i'll try to post here for experts to dissect and we can then copy this behaviour.
May I see the statement?
  • #8
  • Jun 24, 2007 9:11pm Jun 24, 2007 9:11pm
If you are not using the same broker for both trades you can still get margin called on your FX position . You cannot use unrealised gains on the option position to offset without closing out the position. To trade this way successfully you would need a company that could allow you trade these markets through one account.

Any way it seems like an interesting strategy.
  • #9
  • Jun 24, 2007 10:40pm Jun 24, 2007 10:40pm
Quoting Enroth
If you are not using the same broker for both trades you can still get margin called on your FX position . You cannot use unrealised gains on the option position to offset without closing out the position. To trade this way successfully you would need a company that could allow you trade these markets through one account.

Any way it seems like an interesting strategy.
Some brokers offer both FX and currency future options, such as Interactive Brokers and MB Trading. But as I posted earlier, I have a feeling that the volatility/interest calculations between your FX position and the CME option position will cause a loss in the long run.

I guess you could trade a pair on the FX market that pays interest (such as long USDJPY) and buy a JY call on the CME (remember, all CME currency futures are listed as xxxUSD) that is far in the money so that the time decay does not affect your option position that much.
  • #10
  • Last Post: Sep 9, 2007 10:35pm Sep 9, 2007 10:35pm
okay i found this thread finally.

back to the original topic, what would the difference in buying just currency options with spot underlying currency vs. options on currency futures. Would the latter be more expensive and offer more leverage, as opposted to the normal currency option (like the ones offered by ISE).
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