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Option barrier protection plz explain.

  • #1
  • First Post: Apr 11, 2007 6:22pm Apr 11, 2007 6:22pm
I see this quite often that a currency will meet good resistance or support as a certain price is an "option barrier protection." What exactly does this mean?

I read a ton of threads here at FF and always see people, myself included, buying, selling currency but I never hear any talk of Forex options. Are there any traders here trading forex options?
  • #2
  • Apr 11, 2007 10:09pm Apr 11, 2007 10:09pm
Quoting imbiber
I see this quite often that a currency will meet good resistance or support as a certain price is an "option barrier protection." What exactly does this mean?

I read a ton of threads here at FF and always see people, myself included, buying, selling currency but I never hear any talk of Forex options. Are there any traders here trading forex options?
In a nutshell, I am not aware of an FX Brkr that can appropriatly handle Options.
On the other hand, there may be a few Options Brkrs that can handle FX. ?

Something you Need to understand is that Options on Futures have been around an awfull lot longer than the Slash and Dash, Cut And Run, FX {close to} spot market trading platforms.

Options, though far more complex, include Puts & Calls. If you buy a put, you are bearish. Sell one and you are a Bull {btw. if you do Sell a Put, the money is insantaeousley credited to your account} Calls are respectively Inverse.

Major Monetary Institutions utilize this vehicle to utilize {not only} excess funds.

Scenario Only
(I think by June the Euro Could be at 1.37. Buy Out of the Money June 1.37 Calls at Market and let's just see if it get's there.)
Total Risk for the Duration of the Trade = Total Expense of entering the Trade. {just a guess but prob ~ $450.00 / anyone know? I didn't feel like looking it up}
Major Financial Institutions would have decided that {in June} paying $1.37 for a Euro may be a bargain, maybe not but at least we already know the cost of doing business and can throw that in the budget. {It's actually wayyy more complicated but let's jump to the chase}
Lets say that come the middle of June {if memory serves, Curr. Fut. roll on third thursday} the Euro is sitting at 1.3650 and all these Major Players have a Trade on saying it will get to 1.37. Where do You think the Pressure lies?

Herin lies Option Target and conversly Option resistance for those on the other side.

I know a lot of members won't understand this, some others with Option Experience may want to pipe in. {Options are Very Very Flexible and require intamate understanding}. If you had a tough time comprehending "Short", stay away from Options.
  • #3
  • Apr 11, 2007 10:26pm Apr 11, 2007 10:26pm
Quoting imbiber
I see this quite often that a currency will meet good resistance or support as a certain price is an "option barrier protection." What exactly does this mean?

I read a ton of threads here at FF and always see people, myself included, buying, selling currency but I never hear any talk of Forex options. Are there any traders here trading forex options?
In short, I sell you a two week, one touch option on euro at 1.3500. Meaning if price touches 1.3500 at any point over the next two weeks, I have to pay you an agreed upon amount of money. I don't want to pay you anything and if I can hold price below this level for the next two weeks, I get your option premium. If I'm successful you get a worthless piece of paper.

As price gets close to 1.3500 I will start selling eur/usd. If the option payout is big, I can spend a large amount of money defending it. This is what is referred to as option barrier protection. I am protecting the option strike price from being hit.
  • #4
  • Apr 12, 2007 1:09am Apr 12, 2007 1:09am
Quoting Darkstar
In short, I sell you a two week, one touch option on euro at 1.3500. Meaning if price touches 1.3500 at any point over the next two weeks, I have to pay you an agreed upon amount of money. I don't want to pay you anything and if I can hold price below this level for the next two weeks, I get your option premium. If I'm successful you get a worthless piece of paper.

As price gets close to 1.3500 I will start selling eur/usd. If the option payout is big, I can spend a large amount of money defending it. This is what is referred to as option barrier protection. I am protecting the option strike price from being hit.
Very interesting, I'm wondering if one can take advantage of those options for hedging, let's say we buy the two week, one touch option on euro at 1.3500 so we if price gets there we get the payout. In the mean time we will be shorting the euro and closing it when it gets to support and then shorting again when reaching resistance, now if any of those shorts goes bad then we have the option to cover us.
  • #5
  • Apr 12, 2007 1:23am Apr 12, 2007 1:23am
Quoting ayato
Very interesting, I'm wondering if one can take advantage of those options for hedging, let's say we buy the two week, one touch option on euro at 1.3500 so we if price gets there we get the payout. In the mean time we will be shorting the euro and closing it when it gets to support and then shorting again when reaching resistance, now if any of those shorts goes bad then we have the option to cover us.
Well for one your going to a pretty hefty premium to buy the option due to its proximity to the current price. Secondarily the payout is going to be a fixed figure determined at purchase, so you run the risk of losing more then you stand to gain. You could still do it, but it wouldn't be as lucrative/easy as it first seems.
  • #6
  • Last Post: Apr 12, 2007 11:48pm Apr 12, 2007 11:48pm
{Options are Very Very Flexible and require intamate understanding}. If you had a tough time comprehending "Short", stay away from Options.
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