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Forex Options Strangle System

  • #181
  • Jan 18, 2011 12:54pm Jan 18, 2011 12:54pm
Quoting agent6488
I'm in the U.S. I'm seeing that most ETFs trade in increments of 100 shares. That requires you to have at least a $10,000 account. ETFs seem so much better than OTC options (learningmarkets has some videos on this). I would think that everyone with enough money would go the ETF route, and the OTC would be picking up the small accounts. I guess they're competing for the same market though, as places like Saxo have a high minimum deposit, leaving us sub-10,000 guys with just spot trading and no way to hedge effectively.
There are other issues with ETF options:

1) Limited trading hours lead to gaps.
2) Margin isn't as good as options on the spot market
3) Strikes are forced to be every $1, or 100 pip equivalents.
4) Liquidity isn't as good as in the spot market. Today the the FXE has traded just over 4100 options or 410,000 shares worth. That is nothing compared to the tens of millions in EURUSD options traded today since the FX Options market is a $200B a day market.

However on the plus side:

1) Regulated market centralized market.
2) Better spreads.
  • #182
  • Jan 18, 2011 1:06pm Jan 18, 2011 1:06pm
Hm interesting...
Do you know how margin works in options accounts? I think I'd like to try a few stabs at things like the FXE and EUI, but will probably be looking at a small account deposit.
I'm not sure if either of those ETFs require lots of a certain size, and what the cost mights be.
  • #183
  • Jan 18, 2011 5:10pm Jan 18, 2011 5:10pm
Scattergood
1) Limited trading hours lead to gaps. Yes agree

2) Margin isn't as good as options on the spot market ? What you mean? for Options trading (buying) the issue of margin does not come in to picture so in that regard Saxo or ETOs are same
it is only for when selling naked or cash covered options that margin policy comes in to picture.... so are you talking about that "Margin" in that case may be for Naked options writing ( selling) Saxo might be better than ETOs

3) Strikes are forced to be every $1, or 100 pip equivalents. Yes . agree

4) Liquidity isn't as good as in the spot market. Today the the FXE has traded just over 4100 options or 410,000 shares worth. That is nothing compared to the tens of millions in EURUSD options traded today since the FX Options market is a $200B a day market.

Confused... Which options are you talking about ETOs on FXE? or ISE FX futures options?
With Saxo you can;t see market activity
  • #184
  • Jan 18, 2011 5:15pm Jan 18, 2011 5:15pm
Quoting agent6488
Hm interesting...
Do you know how margin works in options accounts? I think I'd like to try a few stabs at things like the FXE and EUI, but will probably be looking at a small account deposit.
I'm not sure if either of those ETFs require lots of a certain size, and what the cost mights be.
I am assuming you are talking about ETOS not Saxo OTC

If you are buying options then NO margin you got to have 100% upfront
If you are selling Options ( called naked ) you need level 5 account , check with your broker

You can try Options express Demo options account first
  • #185
  • Jan 18, 2011 5:23pm Jan 18, 2011 5:23pm
Quoting moksha
Scattergood
1) Limited trading hours lead to gaps. Yes agree

2) Margin isn't as good as options on the spot market ? [color=Magenta]What you mean? for Options trading (buying) the issue of margin does not come in to picture so in that regard Saxo or ETOs are same
it is only for when selling naked or cash covered options that margin policy...
1) We agree!
2) Margin on selling spot options is about 3% while margin on EFT currency options is about 20%, a 7:1 difference.There is no margin on purchased options.
3) We agree!
4) While you can't see Saxo's activity, you do have a sense that the liquidity is better. Why? Well, because on Saxo they allow a 10M one click options trade on the EURUSD at any strik, meaning there is that liquidity there, or they are willing to take that liquidity risk themselves. What would a 10M equivalent be on the FXE:

10M / 135 = 74074 shares = 741 contracts.

I think a 741 one click options trade on the FXE that trades 4100 options contracts between both calls and puts and for all strikes is a HUGE, HUGE trade and would suck up basically all the liquidity. Not so on the EURUSD spot options at just one brokerage.
  • #186
  • Jan 18, 2011 8:04pm Jan 18, 2011 8:04pm
Has anyone else tried the Alpari Options demo?

The platform seems to be the best one I have used, and the spreads are only about 5 pips - I wonder if this will translate to the real world when the system goes live?

The only problem I see is that their margining is horrendous and doesn't offset if you sell opposing positions in the same pair. However, the margin calculator shows the margin at much lower rates and offsetting, so I have emailed them to ask what is going on...
  • #187
  • Jan 18, 2011 8:11pm Jan 18, 2011 8:11pm
I tried Alpari for a little bit. It seems like you can open a live account now, but you say it's not live yet?
I mentioned in post 169 that the payouts and spreads seemed bad... I couldn't really put my finger on it; needs a direct comparison to Saxo I guess.
Let us know what happens with margin.
  • #188
  • Edited 1:37am Jan 19, 2011 1:18am | Edited 1:37am
Quoting scattergood
1) We agree!
2) Margin on selling spot options is about 3% while margin on EFT currency options is about 20%, a 7:1 difference.There is no margin on purchased options.
3) We agree!
4) While you can't see Saxo's activity, you do have a sense that the liquidity is better. Why? Well, because on Saxo they allow a 10M one click options trade on the EURUSD at any strik, meaning there is that liquidity there, or they are willing to take that liquidity risk themselves....
Good reasoning and explanation Scatergood

Can you please compare FX options on Futures with Saxo Options rather than Options on ETFs
Option type
Underlying & Levergae
Option selling Margin
Transperance
Liquidity
ETOs on FX ETFs
ETF, Reg T , 1 to 1
20%
Exchange
Average to Low
ETOs on FX Futures
Futures ?
?
Exchange
?





OTC options on SPOT
SPOT FX 1:50
3% SAXO
Single MM
Good MM






Saxo FX options certainly look easy to trade however a single market maker with nothing to compare it with is a scary thought
  • #189
  • Jan 19, 2011 1:38am Jan 19, 2011 1:38am
Trying to put a comparison table
But for some reason it does not come through on in the post

Option type
Underlying & Leverage
Option selling Margin
Transperance
Liquidity
ETOs on FX ETFs
ETF, Reg T , 1 to 1
20%
Exchange
Average to Low
ETOs on FX Futures
Futures ?
?
Exchange
?





OTC options on SPOT
SPOT FX 1:50
3% SAXO
Single MM
Good MM




  • #190
  • Jan 19, 2011 12:57pm Jan 19, 2011 12:57pm
I was hoping to fish for some further commentary on Ikon. They seem to have the exact same options platform as PFGBEST. Any ideas on how to compare the two?

Also I want to ask for a quick review on spreads. How do spreads affect option selling? I see price maybe at 1.3000, and the option price displays .0110. That's not a 110 pip spread, right?

My goal is to evaluate the feasibility of having a $1000-$5000 account, selling calls and puts on lots of 100,000, and covering them either by buying ATM options or trading spot. I want to do this without having bucket shop, spread, or margin SNAFUs.

Thanks for any light shed on this.
  • #191
  • Jan 19, 2011 4:38pm Jan 19, 2011 4:38pm
Quoting agent6488
I was hoping to fish for some further commentary on Ikon. They seem to have the exact same options platform as PFGBEST. Any ideas on how to compare the two?

Also I want to ask for a quick review on spreads. How do spreads affect option selling? I see price maybe at 1.3000, and the option price displays .0110. That's not a 110 pip spread, right?
Talking about brokers there are two major product differences when it comes to Fx Options:
1) Exchange traded options, and
2) OTC (over the counter) Fx Options

The underlying security for exchange traded options are currency futures, and these options are only traded during the exchange opening hours (CME, PHLX, ISE, GLOBEX opening hours).
The underlying security for OTC Fx Options are Fx spots, and these options are traded when the forex market is open.

When You're talking about the spread differences among the different brokers, it is the spread between the bid/ask price. If the bid price is 0.0110 and the ask price is 0.0122, then You have a spread of 12 pips.
If You sell this option You recieve to premium of 110 pips - but if you buy it back again the moment after - You are paying 122 pips. So You've lost the spread of 12 pips.
This spread is of concern if You are to roll the position at a later date. When rolling the position You want the spread as tight as possible.

Spread is also a term in options trading for multi-legged trades; bull-, bear, credit- and debit spreads to mention a few. However this has nothing to do with the bid/ask spread which we want as tight as possible no matter what we are trading.
  • #192
  • Jan 19, 2011 5:16pm Jan 19, 2011 5:16pm
Thanks. The options spread makes sense now. I knew it was something like that. I have also noticed the use of the word "spread" for other trading meanings; confusing, although I guess the idea is the same: the space between two price points.

When I was asking for a comparison, I didn't mean between exchange trading and OTC, I meant between PFGBEST and IKON. They are both OTC brokers that use the exact same options platform. I'm not sure how to determine which one is better (liquidity and spreads maybe?).

I'm trying to determine if I can get away with the account setup I described above.
  • #193
  • Jan 19, 2011 6:26pm Jan 19, 2011 6:26pm
Hi all, great thread.

I have just created a couple of demos with IKON and Saxo, in principle I tried to give priority to Saxo as I am UK resident, so I thought it would be nice to have base currency GBP.

However I was just comparing two similar puts, (same expiration date and strike and this is the shocking result):

21 pips premium from Saxo
73 pips premium from IKON

So it would seem that IKON is much more advantageous in this situation, (although it just have 14 currency pairs, gold and silver compared to hundreds of pairs from Saxo)
Attached Image (click to enlarge)
Click to Enlarge Name: 2011-01-20_0011-IKON.png Size: 21 KB
Attached Image
  • #194
  • Jan 19, 2011 10:01pm Jan 19, 2011 10:01pm
Here's some info on PFGBest and Ikon. They seem almost identical... Ikon has lower margin here, but I have some other demo short calls open on that platform... not sure how they affect margin.
Attached Image (click to enlarge)
Click to Enlarge Name: pfgbest_vs_ikon.jpg Size: 250 KB
  • #195
  • Jan 19, 2011 10:14pm Jan 19, 2011 10:14pm
May be both are White labels of SAXO just the way CItiFX is
  • #196
  • Jan 20, 2011 3:26am Jan 20, 2011 3:26am
Quoting agent6488
I was hoping to fish for some further commentary on Ikon. They seem to have the exact same options platform as PFGBEST. Any ideas on how to compare the two?

Also I want to ask for a quick review on spreads. How do spreads affect option selling? I see price maybe at 1.3000, and the option price displays .0110. That's not a 110 pip spread, right?

My goal is to evaluate the feasibility of having a $1000-$5000 account, selling calls and puts on lots of 100,000, and covering them either by buying ATM options or trading spot. I want to do this without...
Under 10 K as I mentioned earlier you can try Whitelabels of Saxo in Australia .. ask Saxo Singapore for the names

Now about your aim - selling calls and puts on lots of 100,000, and covering them either by buying ATM options
DO you mean doing a Vertical spread trade ?
Example : AUD/USD you sell a 0.9900 CALL and cover yourself by buying higher strike say 0.9950
It would a be a credit spread

You further say: or trading spot.

DO you mean Covered call writing (CC"?

Example: LONG spot AUD/USD @ 0.9900 and SELL a 0.9900 Strike Call

With CC.. there is still be downside .. are you aware of it?

I want to do this without having bucket shop, spread, or margin SNAFUs.
  • #197
  • Jan 20, 2011 7:34am Jan 20, 2011 7:34am
Quoting agent6488
I was hoping to fish for some further commentary on Ikon. They seem to have the exact same options platform as PFGBEST. Any ideas on how to compare the two?

Also I want to ask for a quick review on spreads. How do spreads affect option selling? I see price maybe at 1.3000, and the option price displays .0110. That's not a 110 pip spread, right?

My goal is to evaluate the feasibility of having a $1000-$5000 account, selling calls and puts on lots of 100,000, and covering them either by buying ATM options or trading spot. I want to do this without...
Asked PFG about FX Options... They say .."Currently we offer Forex option trading via telephone through our trade desk."

So which platform are you referring to with PFG?
  • #198
  • Jan 20, 2011 3:35pm Jan 20, 2011 3:35pm
I am looking to do covered calls, preferably with spot. PFG's demo FX platform is pictured on the left in the image I uploaded in my previous post. I do not know anything about their live accounts or their over the phone trading.
  • #199
  • Jan 20, 2011 4:53pm Jan 20, 2011 4:53pm
Agent
When did u download the platform because I checked with live chat just now ( Friday morning Australian Eastern Time)
They say
Katie: I apologize for the wait. How may I help you?
you: does your platform offer FX options?
Katie: No. None of our platforms allow FX options.
  • #200
  • Jan 20, 2011 5:01pm Jan 20, 2011 5:01pm
It looks like PFG does not offer Option anymore

Katie: I can't tell which platform this is. I do know that we do not offer FX options on our platforms any longer. We did up until a few months ago, but due to the new FX regulations we no longer use a few of our platforms.
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