Forex Options Strangle System

"So isn't your argument that all successful traders are lucky?"

No I am not saying that... all I am saying is in this strategy you need the
Pair to remain within a band.
For the first 12 months of your strategy it seems it has .. but IF a Huge surge happens! you will take a long time to recover and then ROI will not look so good

I do understand you are selling time But you still need the the pair to BEHAVE!

My other concern is Just like Covered Calls the monthly returns to newstarts may seem very lucrative.. and they may be lulled in to a false sense of security ...but what happens when things go wrong!

So again no disrespect to you but I think either a longer back test or a longer forward test will explore this strategy further warts and all

BY the way since the strategy needs the underlying to remain within 2 strike distances isn't Iron Condor a better thing.. at least you can sleep at night

James, could not agree more. The key is knowing what to do when you are wrong, not what to do when you are right.

You are right, you need the pair to remain in a band. The other way of saying that is you have to chose your strike prices in such a way that the pair doesn't move beyond a price..... you have to be not wrong as opposed to having to be right.

You can see above in the thread, I have been wrong. I had to roll 7 times out of 50+ trades. The EURUSD dropped 1700 points last spring and I had to roll 2x on one trade and get out of the way. I had to ride out 30% mark to market move on a monthly basis. That's trading.

However, by rolling out of the way and waiting, I made ALL the money back in the late spring and summer. That is the entire point of the system. You have to know what to do when you are wrong. If you trade directionally, when you are wrong you can double down your position and change your entry price waiting for a move in your direction, or eat the loss and look for another trade.

With FOSS, you eat the loss, but get the cash back immediately and turn the loss into time and distance to strike. That style is for some people, like me, and it isn't for everybody.

The only things I can be SURE of in the market is that tomorrow will come, and that the price of an instrument will change, and that the price of an instrument won't change in one direction forever. The FOSS is designed to maximize the things I can be sure of and minimize everything else.

As to condors, they aren't really tradeable in FX options. Why? Because with a spread of 10 pips, you are paying nearly 40pips (20 pips for each side of the condor), just to be in the position. When the entire strangle may be worth 40-50 pips, I don't want to pay 50% in spread to get into the condor.

"As to condors, they aren't really tradeable in FX options. Why? Because with a spread of 10 pips, you are paying nearly 40pips (20 pips for each side of the condor), just to be in the position. When the entire strangle may be worth 40-50 pips, I don't want to pay 50% in spread to get into the condor.

Just exploring this further ( Condor)
I am assuming you are referring to Saxo FX options with large spreads
Is it true for Exchange traded ISE FX options?

http://cdn.forexfactory.com/images/buttons/quote.gif

Yes, for options on the cash market. I don't trade the ISE options as the margin is terrible.

Hi guys

When do You personally find it the right time to roll a position if it goes against you?
Let's say one month to exp. and price has reached the strike. Would You prefer to roll it at the strike price or maybe wait to see if price reaches Your stike +/- the premium received earlier?

Or do You call it from situation to situation depending on the force of the move?

Cheers
T

There are three factors that help me decide if and when to roll:

1) I reserve enough cash in the account to absorb a FORECASTED amount of loss at my strike +50-100 pips. So if the underlying gets to my strike early in the options life I may not have a lot of cash to deal with the position and have to roll. If it gets to the strike late, like with 2 or 3 days left I may have plenty of cash to maintain the position.

2) What are the internals doing. In reading the above posts, I use some 'internals' indicators to see whether the underlying's move is convergent or divergent from the overall internal strength of the pair. If convergent, I am looking to roll.

3) What does the price action look like with regards to support and resistance? Have we closed strongly above a resistance line, etc.

But in general, if any one of the above factors looks shaky, roll. It is better being out wanting in vs being in wanting out.

Thanks. Good points to consider. Sounds like a good methodology to apply. I'm always interested in broadening my trading perspective.

Congratulations for this thread, I really like options trading and unfortunately you don't see much around.
I would like to ask you about trading different options like agricultural, metal,etc. I think that diversification is very important.
Also, if you know a good broker to trade those kind of options,. Ikon is probably the best for otc options, but they trade options on future by phone or chat, I do not fancy that.

thanks
David

Hear is a good example of strangle trade.

Singing up. Thanks for the thread.

Lenoxer

Great, welcome. Right now I am held up on brokerages as many pulled out of the USA and finding the right one is challenging for a variety of reasons.

Dear S.,

Thanks very much for the thread. Will have a read; the thread's not long and I don't want to bother you for info if the info is already there; but I'm sure I'll have a bunch of questions anyway. For example, why is this thread so short if the strategy is profitable? As well, in terms of your brokerage issues, why not just trade through Saxo? They may be a bit expensive but they'll give you good margin, the service is good, and they won't steal your funds.

My best,

Lenoxer

Lenoxer,

Ask your questions away! The thread is short i believe because people normally trade directionally, and this system is an anti-directional system where you make money on time, money management, and where the price of the currency is NOT going. It is a very different way of thinking.

Saxo is a good broker, expensive, but good. Unfortunately I have heard rumblings from them that they aren't sure how long they will support USA based clients. Maybe 6 months, maybe a year. So I have to weigh that, or setting up a non-USA based company, or waiting for an Alpari / FXDD / FXCM to open up options trading. I know Alpari is trying to get it going, but I am unsure about the others.

Anyway, I look forward to your questions...

scattergood

Why would Saxo not want US-based customers?

Dear S.,

I appreciate greatly your good-will in answering questions. Thanks very much. OK, been through the thread and here we go:

1) Which currencies are best? How do you know? How many positions will you have on at once? And if you have multiple positions how do you judge the overall amount of leverage to your portfolio---what is too much and what is acceptable?
2) Any particular way that you price the options? i.e. how do you know which strikes have more juice in them than any other? Would it help to use an option model? Would it hurt and why?
3) Once you sell the strangle and price is moving toward one leg of the strangle, how does the level of volatility inflate/affect the price of the endangered side of the strangle, i.e. what is the range of what the pricing can be?
4) How do you figure the amount of margin needed when price approaches one side of the strangle versus when the strangle is initially put on---I didn't understand this well on the thread.
5) Can you describe how your indicator works and why it is effective in helping you trade? In short, how predictive is it and what decisions will you make based on it?
6) How do you understand the risk versus the reward in the strangle trade, i.e. perhaps you're getting a good return on your margin, but how much danger are you courting since you are being short volatility? Nassim Taleb in The Black Swan would be unhappy with you. As Sheldon Natenberg in his famous book, Option Volatility and Pricing (1994), on page 187 writes in italics: "While there is no substitute for experience, most traders quickly learn an important rule: straddles and strangles are the riskiest of all spreads."
7) Have you thought about doing any other types of option trades? If yes, which types of trades and why and if no, why not?
8) Have you ever thought to hedge overnight and news spike risks by putting in buy/sell stops in the cash market at the point where you are short the strangle? That is to say, if you're short one call of a EURUSD strangle at, say, 1.4200, would you put in a market order to buy one lot of EURUSD at 1.4200 just in case price spikes against you while you're gone from your computer?
9) How often do you check prices? In short, what's the least frequently you can responsibly not check prices?
10) What is the best broker overall, in your opinion, with respect to margin and spreads and service and platform? You've mentioned Saxo and Ikon. How about Interactive Brokers or someone else?
11) Is there anything that I didn't ask that I should have?

Again, thanks so much,

Lenoxer

The NFA / CFTC have put on some onerous compliance restrictions for firms soliciting and supporting US clients.

I closed this eur trade today.
Bought the 1.405 today for $75
Bought the 1.235 for $287
Profit $550

scattergood,

great thread. Since I'm new to option trading I opened demo acc with Saxo to play with before I feel more comfortable. Now there is one thing I don't quite understand and couldn't find more info about and that's the exercise method - spot or cash. And more important what are the advantage and disadvantage with both of them.

Again I know that's not something with your system but I'd appreciate your answer.

Here is what they mean:

Cash Settled: At the time of expiry, the account is debited or credited the cash value difference of the strike of the option and the price of the underlying AT THE MOMENT OF EXPIRY.

So let's say you own a EURUSD Call with a strike of 1.2800 and at the moment of expiry the EURUSD is at 1.2900. A Cash Settled option would just place 1000 USD in your account and you would have no open positions.

Spot Settled: At the time of expiry, the account is given a position in the underlying at the strike price.

So let's say you own a EURUSD Call with a strike of 1.2800 and at the moment of expiry the EURUSD is at 1.2900. A Spot Settled option would create a long EURUSD position in your account with an entry price of 1.2800 and your would see a profit of 1000 USD in your account at the time of expiry.

The difference is that in a cash settled option you have the profit and no positions, so you cannot make or lose any more. A spot settled position would create the position with the profit attached so you could make or lose more. It just depends on what you want.