DislikedDear 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...Ignored
Let’s start with question #1:
Which currencies are best? – I trade crosses of the top 8 currencies (AUD, CAD, CHF, EUR, GBP, JPY, NZD, USD). However I try to stay away from crosses that are too violent in their volatility. GBPJPY, EURAUD for example. In truth, I traded mainly the GBPUSD, USDJPY, EURUSD.
How do you know? – It is comfort. If I can’t sleep at night, I try not to be in that position.
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? – I try to have 1-2 positions in 2-3 currencies. You should be able to have a position and enough money to enter another position in the same currency, and then do that on other currencies.
For example, let’s say I enter a EURUSD strangle with 30 days out until expiry. We’ll if we get to 5 days left of expiry, I may want to enter another one 35 days out, so I need the funds to do that. Also, let’s say we get to 5 days out, I may need to roll that one into a strangle that has 90 days of expiry and then enter a new position for 30 days of time. So I need 1-2 positions worth of funds for each currency, and I want to spread my risk around to 2-3 currencies.
Now let’s go to #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? – I don’t trade on under or overvalued option premiums, so this isn’t material. I trade on whether the underlying will not likely get to my strikes AND if the premium will generate significant return for funds necessary to get to the roll point. In other words I focus on the likely delta issues of price movement.
Would it help to use an option model? Would it hurt and why? – The broker uses his model, and that is the one that matters. You can use ones that differently price options, but not sure that would really help you.
Now let’s go to #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? -- Volatility’s effect on the option premium is measured in vega. Delta, or distance to strike, is MUCH more important in my trading. Plus over 30 days, volatility can change, but the change pales in comparison to that of delta and theta.
Now let’s go to #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. – Margin is Size x Delta x 0.02%
An at the money option (ATM) has about a .50 delta so an ATM USDCHF call on one lot would be:
100000 USD x .5 x .02 = 1000 USD for and ATM call.
Now let’s go to #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? -- Divergences between the internals and the pair indicate support or non-support for the pair's move.
If the EURUSD is going up, but the EUR is flat against EVERYTHING else and the USD is flat against EVERYTHING else, then the EURUSD move isn't the best supported one, for example.
Now let’s go to #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." – The issue is always, what to do when you are wrong. Yes, I will be wrong, yes prices will move 3-5 standard deviations, but as long as I have the ability to roll and get out of the way of such events by absorbing the loss and trading it off for time, I am ok with that risk.
FX Option is a 200B USD a day market. It dwarfs all other options markets. You need to understand their Black Swan events are related to equities options in which liquidity can and do dry up.
Now let’s go to #7:
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? – I watch the markets and deal with things like this if the underlying is near my strike. I do not enter the spot market because while I am in that’s great if it is going my direction, but what if it reverses. I am not taking directional bets, I am betting the pair will not move beyond my strike much and if it does I roll.
Now let’s go to #8:
How often do you check prices? In short, what's the least frequently you can responsibly not check prices? – Daily. More if it is near a strike.
Now let’s go to #9:
Have you thought about doing any other types of option trades? If yes, which types of trades and why and if no, why not? – I think about options trading all the time. And yes I trade other kinds of strategies, but the strangles have been the best over the longest time.
Now let’s go to #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? – IB doesn’t support cash forex options.
Thanks a lot for all senior explanation in here.. 
sorry for newbie question...