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How FX options can affect spot price heading in to expiration

  • #21
  • Oct 16, 2013 5:48am Oct 16, 2013 5:48am
Quoting srmfx
{quote} Retail brokers don't trade options for 500 mio. This info is provided to agnecies like Reuters, Bloomberg, MNI by bank dealers. Counterparties for options with larger notionals could be hedge funds or big companies. I traded plain vanilla and barrier options when I worked as risk manager for a company that was exporting a commodity. Volumes were not that large, but the information is available only for the banks and their customers.
This confirms my suspicions and also questions how anyone other than the agencies you list could publish current options activity.
  • #22
  • Oct 16, 2013 5:56am Oct 16, 2013 5:56am
Quoting TranceTrader
{quote} This confirms my suspicions and also questions how anyone other than the agencies you list could publish current options activity.
The info about the options is not 100% reliable because the FX is OTC market. I use MNI for years and think that they are OK regarding the orders and options expiries. When I was FX delaer I used Reuters and their FX Buzz service is also not bad. DJ Newswires are another option.
  • #23
  • Oct 16, 2013 6:04am Oct 16, 2013 6:04am
Quoting TranceTrader
{quote} This confirms my suspicions and also questions how anyone other than the agencies you list could publish current options activity.
Those places sell the information they obtain on the market. Fastest most reputable usually costs the most. Then there are incentive$$ to releasing this info as well. If a large entity sold a No Touch option worth 200 mio to someone, they'd report it so other traders can help breach that level for them. These orders are above retail brokers. We're talking dealers in charge of large hedge funds, foreign banks, ect.

Quoting srmfx
{quote} The info about the options is not 100% reliable because the FX is OTC market. I use MNI for years and think that they are OK regarding the orders and options expiries. When I was FX delaer I used Reuters and their FX Buzz service is also not bad. DJ Newswires are another option.
FX Buzz used to be good, but idk anymore. MNI Bullets are cool, did their trial.
  • #24
  • Oct 16, 2013 6:11am Oct 16, 2013 6:11am
Quoting srmfx
{quote} Retail brokers don't trade options for 500 mio. This info is provided to agnecies like Reuters, Bloomberg, MNI by bank dealers. Counterparties for options with larger notionals could be hedge funds or big companies. I traded plain vanilla and barrier options when I worked as risk manager for a company that was exporting a commodity. Volumes were not that large, but the information is available only for the banks and their customers.
What were 'large' options when you were close to the market? Over half a yard you said?
  • #25
  • Oct 16, 2013 6:20am Oct 16, 2013 6:20am
Quoting EmeraldEyes
{quote} What were 'large' options when you were close to the market? Over half a yard you said?
The options market is getting bigger and larger option now is probably 200-250+ mio. I see that volatility of the spot is going down and the price is staying closer to the strike around options expiries.
  • #26
  • Oct 16, 2013 6:31am Oct 16, 2013 6:31am
I never rely 100% on what I read about the options expiries ot large orders. The best tools for confirmation are the quote reading and the price action analysis. Ticks can reveal the size of the orders that are executed. If they confirm that someone is buying and another one selling around the reported option strike I wait for the NY cut. If you want to be a trader for long-term you shouldn't waste your money.
  • #27
  • Oct 16, 2013 7:52pm Oct 16, 2013 7:52pm
Just saw this bit of info for the upcoming session(s) http://goo.gl/Y7XogG "Large GBP/USD 1.6000 strike expires today, also large EUR/GBP 0.8460 strike"

Actually both of these strike levels were met at exactly the 1000/1400, NY/GMT cut today. Interesting to see how they play out for the next cuts once London starts up if those levels still have magnetism.
  • #28
  • Oct 16, 2013 7:58pm Oct 16, 2013 7:58pm
Stubbled across this link to help out the traders that are new to understanding FX options.. looks cool so far! http://www.fxdana.com/ou/L1/hom_beg_01.htm
  • #29
  • Edited Oct 17, 2013 12:01am Oct 16, 2013 11:39pm | Edited Oct 17, 2013 12:01am
Quoting srmfx
{quote} What you can do is to buy a strangle with daily plain vanilla options 1-2 hours before the NY cut. Their volaility will be lower and the time decay would have done most of its job. Binaries aare also a good option.
What I think you mean is short (sell) a strangle 1-2 hours before, as long strangle is a long vol play, as is a long straddle. Who offers vanilla options at that duration?
  • #30
  • Oct 17, 2013 1:49am Oct 17, 2013 1:49am
I am trying to describe it how.....
If the spot price of a security is nearest to a large vanilla option heading to the NY cut, then that would frequently work as a charectarisitc attraction for not availing you the selling below strike price where as buying price is obviously more.
Then the order flow yeilded may be the result of hedge from financial institutions or banks and also the strike price gets to peak where customers demand their pay and may be from heavy or large option holders performing the buying/selling, one of these might set back the strike price level. There will be a change or movement of market if options are actually larger.
This may be well understood by pros.
  • #31
  • Oct 17, 2013 3:18am Oct 17, 2013 3:18am
Quoting chucklots
{quote} What I think you mean is short (sell) a strangle 1-2 hours before, as long strangle is a long vol play, as is a long straddle. Who offers vanilla options at that duration?
nadex
  • #32
  • Oct 17, 2013 3:38am Oct 17, 2013 3:38am
Quoting chucklots
{quote} What I think you mean is short (sell) a strangle 1-2 hours before, as long strangle is a long vol play, as is a long straddle. Who offers vanilla options at that duration?
I mean exactly long strangle. Volatility goes down before the option expiration at NY cut, because the pair trades in a tight range. I expect increase in volatility after the large option expires.
  • #33
  • Oct 17, 2013 3:44am Oct 17, 2013 3:44am
Nadex, not really they offer digitals and bull spreads. Best to use CME on futures or ETF's I guess. Either way 1-2 hour short strangles? Can't see that ending well.
  • #34
  • Oct 17, 2013 3:47am Oct 17, 2013 3:47am
Quoting srmfx
{quote} I mean exactly long strangle. Volatility goes down before the option expiration at NY cut, because the pair trades in a tight range. I expect increase in volatility after the large option expires.
Ok I see. Not the greatest strategy either way. Is this for day trades? News also comes out around and before so it seems like a bad time for any edge on long strangles on a day trade (which I am assuming you meant).
  • #35
  • Oct 17, 2013 4:28am Oct 17, 2013 4:28am
I would of thought short term retail OTC options would be over priced regardless of volatility and difficult to scalp in the manner described. When I think currency options, I think contract options over GLOBEX... not binary/digital or other fixed odds forms of trading giving the broker(counter party) the edge.
  • #36
  • Oct 17, 2013 4:30am Oct 17, 2013 4:30am
Quoting chucklots
Nadex, not really they offer digitals and bull spreads. Best to use CME on futures or ETF's I guess. Either way 1-2 hour short strangles? Can't see that ending well.
Daily plain vanillas expiry at 8PM London time. They are usually very cheap if the market spent the time before NY cut in 30-40 pips range. The average daily range for EUR/USD is 70-80 pips recently. This is simple math.
  • #37
  • Oct 17, 2013 4:31am Oct 17, 2013 4:31am
Quoting chucklots
{quote} Ok I see. Not the greatest strategy either way. Is this for day trades? News also comes out around and before so it seems like a bad time for any edge on long strangles on a day trade (which I am assuming you meant).
For the news trading I have to other strategies. Pure volatility trading. I'm not interested in the price.
  • #38
  • Oct 17, 2013 4:39am Oct 17, 2013 4:39am
Quoting TranceTrader
I would of thought short term retail OTC options would be over priced regardless of volatility and difficult to scalp in the manner described. When I think currency options, I think contract options over GLOBEX... not binary/digital or other fixed odds forms of trading giving the broker(counter party) the edge.
Correct. Forget about it... just a gamble with a large edge-loss for the most part. There is a few places for non US residents for weekly exotics that are priced good. CME is your best bet otherwise for retail level FX options.
  • #39
  • Oct 17, 2013 4:44am Oct 17, 2013 4:44am
Quoting srmfx
{quote} Daily plain vanillas expiry at 8PM London time. They are usually very cheap if the market spent the time before NY cut in 30-40 pips range. The average daily range for EUR/USD is 70-80 pips recently. This is simple math.
Excuse me srmfx, it's hard to follow you.

Where are you trading daily vanillas?

Options pricing does not simply depend on 30-40 pip ranges before NY cut. This is simple fact.
  • #40
  • Oct 17, 2013 5:35am Oct 17, 2013 5:35am
Quoting chucklots
{quote} Excuse me srmfx, it's hard to follow you. Where are you trading daily vanillas? Options pricing does not simply depend on 30-40 pip ranges before NY cut. This is simple fact.
Options pricing depends on volatility. Small range means lower volatility and cheap options. Don't remember the time decay.
I don't want to promote brokers, but I can tell you that there are at least 2 decent ones.
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