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Order Flow - Achieving the mindset

  • #1,901
  • Jun 16, 2011 6:11am Jun 16, 2011 6:11am
Quoting seagreen

So, it can be used as a live version of COT report.
In a way, I use it as more of a sentiment/expectations thing... they could be using the options just to hedge risk or bets on positions too I would think, so it really depends. Just another piece to add to the story...
  • #1,902
  • Jun 16, 2011 7:32am Jun 16, 2011 7:32am
Quoting Monroe
ahhh seems they finally popped that eur/chf barrier at 1.2.... it was only a matter of time
Yep, it was going to happen but I'm sure it ruined some traders during that upmove. I dumped all longs @ down break of 1.22.. glad the big guys threw a 48hr sale on eur/chf shorts. I was able to reposition myself even better for parity.. one day.
  • #1,903
  • Jun 16, 2011 8:01am Jun 16, 2011 8:01am
Quoting EmeraldEyes
Yep, it was going to happen but I'm sure it ruined some traders during that upmove. I dumped all longs @ down break of 1.22.. glad the big guys threw a 48hr sale on eur/chf shorts. I was able to reposition myself even better for parity.. one day.
nice....

Attached Image (click to enlarge)
Click to Enlarge Name: eurchfweekly.png Size: 6 KB
  • #1,904
  • Jun 16, 2011 8:09am Jun 16, 2011 8:09am
Quoting seagreen
So, it can be used as a live version of COT report.
Not really. Remember that options are a play on volatility, not on direction. Wikipedia explains RRs better: A positive risk reversal means the volatility of calls is greater than the volatility of similar puts, which implies a skewed distribution of expected spot returns composed of a relatively large number of small down moves and a relatively small number of large upmoves.

Most assume if puts are more expensive -> downward move more probable. You need to really understand how delta-hedging works (the fundamental option trading strategy) to finally get options. It's a truly mind-bending moment when you finally see why a put is from a volatility point of view identical to a call and why in most situations they should have the same price. Even more awesome (for people not schooled in finance like me) is understanding how you can create a synthetic option by just trading the spot, or the other way around. With these stepping stones, you can then move to more complicated structures like DNT. The barrier strike level is not the single item that counts (ie: what about the vols).

Saxo bank makes available twice a day the ATM vols and the RRs: http://www.tradingfloor.com/posts/fx...-1230-gmt-4041
The also list big vanilla options that they saw traded - the pin risk section.
  • #1,905
  • Jun 16, 2011 8:26am Jun 16, 2011 8:26am
Quoting Monroe
nice....

Attachment
that chart is the only reason im watching this pair

Guys, there's been news about the SNB's abundance of foreign currency reserves. Does that happen when a currency appreciates too quickly (by a monthly chart)? Will there eventually be a point that too much Swissy is in the hands of foreign banks? Chf strength means depreciation of Eur & Usd which accounts for ~80% of SNB's foreign reserves. Something I've been thinking about. thanks!
  • #1,906
  • Jun 16, 2011 8:32am Jun 16, 2011 8:32am
Quoting Adal
You need to really understand how delta-hedging works (the fundamental option trading strategy) to finally get options. It's a truly mind-bending moment when you finally see why a put is from a volatility point of view identical to a call and why in most situations they should have the same price. Even more awesome (for people not schooled in finance like me) is understanding how you can create a synthetic option by just trading the spot, or the other way around.
I STILL don't understand delta hedging. Any good resources you can reco for achieving that "ah-ha" moment?
  • #1,907
  • Jun 16, 2011 8:39am Jun 16, 2011 8:39am
there is one on that webite he linked... don't know if it's good though

http://www.tradingfloor.com/posts/gu...who-cares-3760
  • #1,908
  • Jun 16, 2011 8:41am Jun 16, 2011 8:41am
Quoting Darkstar
I STILL don't understand delta hedging. Any good resources you can reco for achieving that "ah-ha" moment?
I had the same problem. I wanted to understand what this delta hedging was all about, but all the explanations were chock full of math.

Then I saw this book recommendation for math-impaired people who want to get options. Doesn't require more than 5th grade math. I've read it all in a single (longer) train trip and it was one of the most awesome book I ever read. Because it explains how options work with simple graphs and small tables.

EDIT: Forgot to put book
http://www.amazon.com/Buying-Selling.../dp/0471968846
  • #1,909
  • Jun 16, 2011 8:58am Jun 16, 2011 8:58am
Quoting Adal
Remember that options are a play on volatility, not on direction.
That is not true... options can be directional of course.
  • #1,910
  • Jun 16, 2011 9:04am Jun 16, 2011 9:04am
Before this turns into a fist fight I'd like to suggest that you're both right
Time hides Nothing
  • #1,911
  • Jun 16, 2011 9:04am Jun 16, 2011 9:04am
Quoting Adal
Not really. Remember that options are a play on volatility, not on direction. Wikipedia explains RRs better: A positive risk reversal means the volatility of calls is greater than the volatility of similar puts, which implies a skewed distribution of expected spot returns composed of a relatively large number of small down moves and a relatively small number of large upmoves.

Most assume if puts are more expensive -> downward move more probable. You need to really understand how...
Exactly. Specially creating the synthetics part.

For anyone who wants to understand the deeper concepts:

http://www.amazon.com/Options-Tradin...dp/0977869172/
  • #1,912
  • Jun 16, 2011 9:24am Jun 16, 2011 9:24am
Quoting Monroe
That is not true... options can be directional of course.
You're right. But if you have a directional view you should just trade the spot. I can think of a few situations where using options for implementing a directional view would be better, but in general options are more expensive than the spot market for directional trading. It doesn't make sense to me to pay for the volatility estimation embedded in an option and then just throwing that away.
  • #1,913
  • Jun 16, 2011 9:27am Jun 16, 2011 9:27am
Quoting Adal
I had the same problem. I wanted to understand what this delta hedging was all about, but all the explanations were chock full of math.

Then I saw this book recommendation for math-impaired people who want to get options. Doesn't require more than 5th grade math. I've read it all in a single (longer) train trip and it was one of the most awesome book I ever read. Because it explains how options work with simple graphs and small tables.

EDIT: Forgot to put book
http://www.amazon.com/Buying-Selling.../dp/0471968846...
Thanks, Adal.

Monroe, you make a good point about options hedging. I think hedging actually takes a bigger part of options trading. Anyway, in order to use this info I first need to understand options. What Adal says seems understandable but saxobank info is still beyond my comprehension.
  • #1,914
  • Jun 16, 2011 9:29am Jun 16, 2011 9:29am
Quoting Adal
You're right. But if you have a directional view you should just trade the spot. I can think of a few situations where using options for implementing a directional view would be better, but in general options are more expensive than the spot market for directional trading. It doesn't make sense to me to pay for the volatility estimation embedded in an option and then just throwing that away.
yea thats true.... I don't really know options strategies all that well, but I would assume there is more volatility and hedging options strategies going on in FX then directional for sure.
  • #1,915
  • Jun 16, 2011 11:36am Jun 16, 2011 11:36am
anyone ever played around at optionbit.com ?
  • #1,916
  • Jun 16, 2011 11:48am Jun 16, 2011 11:48am
Quoting RichFWebb
anyone ever played around at optionbit.com ?
I used to do pay-to-view advertising programs when I was younger, and this as well as a host of other 'binary option sites' sprawled up a couple years back. Don't even waste your time...

Regards,
xXTrizzleXx
  • #1,917
  • Jun 16, 2011 12:10pm Jun 16, 2011 12:10pm
lol yea i definitely didn't blow 100 bucks there a year ago
  • #1,918
  • Jun 16, 2011 3:53pm Jun 16, 2011 3:53pm
Hey Guys,

Can anyone explain what just happened on the Euro?

Looks to me like there was a lot of Offers just below 1.42 that got bought and then maybe dumped into stops around 1.4220 but I haven't seen anything mentioned Orders wise about anything being there.

Any ideas guys?

James.
  • #1,919
  • Jun 16, 2011 4:03pm Jun 16, 2011 4:03pm
clearin out some shorts, next is 4230
  • #1,920
  • Jun 16, 2011 4:08pm Jun 16, 2011 4:08pm
looks like an equites close / dollar move because there was a spike on cable too, but that might be just because euro pulled it along in thin volume, I don't know... but I thought most would take profit after cleaning out those barriers in early europe with heavy sovereign buying under 4100 ahead of the data and awaiting further greece news... now it closed back above the trendline and 100 dma
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