Forex Options Strangle System | Page 8 | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Forex Deconstruction System (A Mr. Mark So inspired system) 13 replies

Any Options, Bull Options & Option Bit 39 replies

Strangle strategy for options 1 reply

Scaling & Straddle/Strangle Combination - Awesome Potential!! 4 replies

Attachments: Forex Options Strangle System
Exit Attachments

Forex Options Strangle System

  • #141
  • Jan 13, 2011 11:35am Jan 13, 2011 11:35am
Quoting pipfirst
Hi scattergood,

my sell call EUR/USD @ 1.3100 hit by the price. Do I need to directly buy back and roll it ? or I wait for some more day ?

http://i55.tinypic.com/110giso.jpg

any suggestion ?
To roll or not to roll, that is the question? In the strictest terms, if the underlying hits your roll point, then roll. Period, end, stop.

To not roll is taking nearly a 1/2 size position in the underlying. Since your option has a .5 delta when the underlying is at the strike, it will lose 1/2 the amount of the underlying's price move. To be in that position is a judgment call.

The most conservative is to roll, it minimizes the risk the most.
  • #142
  • Jan 13, 2011 5:30pm Jan 13, 2011 5:30pm
Quoting agent6488
Thanks a lot, very helpful. I will have to look further into Saxo's fees. I wasn't able to find anything last time I checked.

Why was my profit on the Long call almost pip for pip $238 if delta is supposed to lessen it?



I didn't see an immediate increase in cash balance when selling/writing options. Does European style pay out immediately when writing?

1) Click on Account Summary in the platform. you will see under Cash and Positions Summary something like Cash Balance. That number should be higher than the 50K initial value for all demos.

2) If you go to Account / Trading conditions and select Forex Options Trading conditions and you can see that there are commissions for smaller lot sizes.

Hope that helps.
  • #143
  • Jan 13, 2011 5:39pm Jan 13, 2011 5:39pm
Cash balance seems to be updated now... will have to keep a closer eye on it.

Forex Options Trading Conditions are blank. I assume that's because I have a demo. If anyone has a screen shot of the basic costs for lots, I would appreciate it. Otherwise I will just check with Saxo.

Would you happen to have an answer to my previous question?
Quoting agent6488

Why was my profit on the Long call almost pip for pip $238 if delta is supposed to lessen it?

Thanks.
  • #144
  • Jan 13, 2011 6:13pm Jan 13, 2011 6:13pm
Quoting agent6488
Cash balance seems to be updated now... will have to keep a closer eye on it.

Forex Options Trading Conditions are blank. I assume that's because I have a demo. If anyone has a screen shot of the basic costs for lots, I would appreciate it. Otherwise I will just check with Saxo.

Would you happen to have an answer to my previous question?

Thanks.
I answered the question, but I think you have something wrong. The $238 value you see on your long call is the PREMIUM you can sell it for not the PROFIT you would receive.

You bought at 109 and it went up 119 pips in value as the EURUSD went up 230, or about 1/2. So the price of the option is 238, and your profit is 109 inclusive of trading fees.
  • #145
  • Jan 13, 2011 6:33pm Jan 13, 2011 6:33pm
Right, sorry; value, not profit. I think The premium is what brought down that 238 by half+, and is also what kept my Long Put loss at 133, because 133 was around what the premiums were.
I'm not seeing a huge impact from Delta on the ATM positions I entered. I will have to experiment more with Delta.

I checked Saxo's website for information on FX Options rates and conditions. It only mentions commissions for "very small value trades," which is subjective. Again, if anyone can give me a quick breakdown of those rates based on lot size, I'd appreciate the knowledge before I fund an account.

Thanks again.
  • #146
  • Jan 13, 2011 9:16pm Jan 13, 2011 9:16pm
Quoting agent6488
Right, sorry; value, not profit. I think The premium is what brought down that 238 by half+, and is also what kept my Long Put loss at 133, because 133 was around what the premiums were.
I'm not seeing a huge impact from Delta on the ATM positions I entered. I will have to experiment more with Delta.

I checked Saxo's website for information on FX Options rates and conditions. It only mentions commissions for "very small value trades," which is subjective. Again, if anyone can give me a quick breakdown of those rates based on lot size, I'd...
My guess is that Saxo charges commission on trades under a 1 lot or 1/2 lot...but it may depend on the pair....
  • #147
  • Edited 3:42pm Jan 15, 2011 11:22am | Edited 3:42pm
I'm trying to decide on where to trade currency options... Saxo, CME, Phlx, or ISE.

To do the comparison on demo accounts I sold:

Saxo Sold 630,000 UsdChf Call with strike .9800 and delta of .28
CME Sold 5 ChfUsd Put with strike of 1.02 and delta of .28
ISE Sold 35 UsdChf Call with strike of .98 delta of .30

each position netted about 3000 worth or premium
each position has about a 25% chance of being in the money

Now is the part I don't understand.... the margins:

Saxo is $5,000
CME is $25,000
ISE is $50,000

Is there a better way to compare these beasts? They are all based on the spot price of the UsdChf so they should be comparable right?

Matt
  • #148
  • Edited 2:03pm Jan 15, 2011 12:19pm | Edited 2:03pm
Quoting qtmspin
CME, Phlx, or ISE.
How did you find so many alternatives to Saxo? I can't find any in a web search.
After looking into those three companies, they all seem pretty exclusive. No easy access to a demo or even an account like with Saxo.

I'm not sure I understand the numbers presented: 630,000, 5, 35. It sounds like they were all equivalent positions (the two calls at least, not sure about the put).
I think Saxo, CME and ISE must just each have different margin percentage requirements? I've read here and there that Saxo tends to increase their margin requirements out of the blue to around 5% during the weekend or news events, which can end up liquidating positions. I guess as long as one doesn't leverage too much, he is fine?
  • #149
  • Jan 15, 2011 3:42pm Jan 15, 2011 3:42pm
You may be able to get a demo at optionsXpress. Their commissions are high they offer ISE CME and PHLX options.

Interactive Brokers requires a real acct to have a sim acct and their min acct size is 10k.

I'm no expert at pricing options, not even a novice, but spread on saxo on this trade cost = 630,000 * .0010, $630

CME spread is usually .0005
125000 (CME Contract size) * 5 = 625,000
625,000 * .0005 = $312

updating my other post - I was reading the saxo balance wrong.
  • #150
  • Edited 5:41pm Jan 15, 2011 4:29pm | Edited 5:41pm
So confusing... so, ISE CME and PHLX are exchanges, and places like Saxo and OptionsXpress are brokers right?
It sounds like if you have enough money, you can trade directly on the exchange, if not, you go with a broker middle-man that takes commission?

The OptionsXpress website doesn't really provide any specific information on their products, much like other broker websites. They have FX Options competitive with Saxo's? And these options are pulled from several exchanges?
Saxo is over-the-counter, off-exchange, yes?
  • #151
  • Jan 15, 2011 9:54pm Jan 15, 2011 9:54pm
Trading options on forex related instruments can be very confusing as it isn't really clear what you are actually trading on. Here is the breakdown:

1) You can trade options on the ETFs that track currency prices. These are the PHLX options. You can trade options on the FXE (Euro ETF) just like you trade options on the SPY (SP 500 ETF). I believe these options are American style, have very limited volume and use stock like option margining or about 5:1 in the best of cases.

2) You can trade options on the futures contracts that track currency prices. These are the Interactive Broker options. They are European style options, have somewhat weird expiration dates because you can trade the expiry before the expiry of the futures contract. I believe these options use SPAN margining which is a custom margin method and results in about a 10:1 margin, but my understanding here is weakest.

3) You can trade options on the actual cash market. They are European style options, have a ton of liquidity ($200B per day) and have great margin, like 50:1 or more. However spreads aren't great for retail traders as Saxo, Ikon etc. show.

Hope that helps.
  • #152
  • Edited 1:56am Jan 16, 2011 1:34am | Edited 1:56am
Cash market is most appealing out of those. Saxo's minimum $10,000 deposit is too steep for me. OptionsXpress's platform doesn't seem to have access to FX Options.
I'm looking at Ikon now. They have 6 different platforms. Very confusing. One seems to be tailored for FX Options. Another has access to CME and other exchanges. I'm not sure which one I want.

Edit: Ikon FX Prime platform seems to be the best for options. Month contracts are the only thing available. FX Elite platform just offers quotes on a bunch of random things like CLZ11 and ADH11; I don't get it. Both platforms are very ugly.
  • #153
  • Jan 16, 2011 2:07am Jan 16, 2011 2:07am
Quoting scattergood
To roll or not to roll, that is the question? In the strictest terms, if the underlying hits your roll point, then roll. Period, end, stop.

To not roll is taking nearly a 1/2 size position in the underlying. Since your option has a .5 delta when the underlying is at the strike, it will lose 1/2 the amount of the underlying's price move. To be in that position is a judgment call.

The most conservative is to roll, it minimizes the risk the most.

Can you give an example here. Say I sold EURUSD 100K 1.3500 call and assuming I don't roll when underluing hits the roll point. At the expiry date the price is still above it say 1.3550. Is that mean I'll be down 50pips on 50K position or am I reading it wrong ?

I guess the question really is how to calculate the loss ?

Regards
  • #154
  • Edited 9:57am Jan 16, 2011 8:56am | Edited 9:57am
Quoting JimboFX
Can you give an example here. Say I sold EURUSD 100K 1.3500 call and assuming I don't roll when underluing hits the roll point. At the expiry date the price is still above it say 1.3550. Is that mean I'll be down 50pips on 50K position or am I reading it wrong ?

I guess the question really is how to calculate the loss ?

Regards
In the situation above your net P/L would be:

(Premium Collected in pips - 50) x 5 USD

So you may or may not lose money. Let's look at two scenarios:

1) You sell your Call for 75 pips:

(75 Pips - 50 Pips) x 5 USD / Pip = 125 USD

2) You sell your call for 25 Pips:

(25 Pips - 50 Pips) x 5 USD / Pip = -125 USD

Hope that helps
  • #155
  • Jan 16, 2011 8:57am Jan 16, 2011 8:57am
Quoting agent6488
Cash market is most appealing out of those. Saxo's minimum $10,000 deposit is too steep for me. OptionsXpress's platform doesn't seem to have access to FX Options.
I'm looking at Ikon now. They have 6 different platforms. Very confusing. One seems to be tailored for FX Options. Another has access to CME and other exchanges. I'm not sure which one I want.

Edit: Ikon FX Prime platform seems to be the best for options. Month contracts are the only thing available. FX Elite platform just offers quotes on a bunch of random things like CLZ11 and ADH11;...
Agreed, I prefer the cash options. Agreed also that Ikon's platforms aren't the most user friendly.
  • #156
  • Jan 16, 2011 9:44am Jan 16, 2011 9:44am
It has been said before but I want emphasize it again because it is the most important thing when selling options. Make sure you have enough margin! If you over leverage yourself you will wipe your account out.
  • #157
  • Jan 16, 2011 9:54am Jan 16, 2011 9:54am
Quoting jameswebb
It has been said before but I want emphasize it again because it is the most important thing when selling options. Make sure you have enough margin! If you over leverage yourself you will wipe your account out.
Let me agree and second that. You must have enough margin and reserve loss to reach your roll point. This is critical, critical, critical in selling options.

I could not agree more with jameswebb.
  • #158
  • Jan 16, 2011 9:13pm Jan 16, 2011 9:13pm
I find selling options very tough psychologically. You make a trade 30 days or so in advance then wait. If you are impatient, it is hard to sit there not doing anything for a month. You have to have a large sum of money just sitting there in case the position goes against you. When it's all looking rosie, the temptation is great to start interfering, and end up over-leveraging yourself. I have learnt this the hard way, and while these urges still crop up from time to time, I am able to remind myself of the consequences and snap out of it!

I can't stress enough how important it is to create some very clear-cut rules, when you are not in any positions and thinking rationally, then stick to them 100% - no matter what. You will be grateful when the price keeps going and you would have ended up with a huge loss!
  • #159
  • Jan 16, 2011 10:15pm Jan 16, 2011 10:15pm
Quoting skoda2008
I find selling options very tough psychologically....
I totally hear you, psychology is key. However I find selling options MUCH, MUCH easier than trading the currency itself.

For me the psychological problem is what to do when you are wrong. If you trade the spot you can:

1) Enter again to change your entry and hope for a move in your direction. This is very dangerous.

2) Close the position with a loss. This is tough to take for me. Winning 30% of trades as big winners and losing 70% as small losers can make a lot of money, but I don't think i can do it.

With options, I know what to do when I am wrong. Eat the loss, get the lost revenue back by rolling the position and collecting more premium and waiting.

The best thing about selling options is theta. You know every day that theta will work in your favor. You can't really say that when you are trading spot.
  • #160
  • Jan 16, 2011 10:32pm Jan 16, 2011 10:32pm
Agreed. It is the only form of forex trading I have done that consistently makes money.

I think there are probably a few reasons it's not more popular on this forum:

1. Initially seems quite complicated, and requires a different perspective.
2. No stop losses - freaks a lot of people out.
3. It's a boring way to trade - you get to do other things with your life and don't have to sit there all day drawing pretty coloured lines all over the charts.
4. You can't start with $500 and expect to turn it into millions, realistically you need a fairly sizeable amount of money to get started, otherwise it just isn't worth it.
0 traders viewing now