Strategy for trading options in forex

A strategy I used to use in stocks some years ago was to trade strangles. Let's say I purchased a strangle for $3.00. I would wait for the Put or the Call option to reach $3.00, then I'd sell it and own the other option for free.

This seems like it may be a good strategy for trading options in Forex.

Has anyone tried anything like this? I have yet to trade an option in Forex and I'm not sure what the differences are compared to trading options in stocks. For example, in the stock market, you can only trade options when the market is open, and it seems Forex options are exactly the same way. Yet Forex doesn't close, it just gets more volatile depending on the time of day and such. Does this make it difficult to get in and out of Forex Options?

Thanks for any input.

You can trade all the underlying assets with options. I trade with strangles structured via plain vanilla or binary options. This is my volatility trade from today http://www.forexfactory.com/showthre...31#post7290531

I'm not so experienced with options to trade volatility. The current trade I'm in expires in March and will require GBPUSD to move 200 pips up or down for me to break even.

What do you mean by "plain vanilla" or "binary" options?

I've not heard those expressions before.

You'd better learn the options basics http://www.optiontradingpedia.com/.
When you use strangles usually you trade volatility and/or time decay.

Whichever vehicle you are trading options over, the principles are the same (unless of course you are playing the game with binary options...dont!). There is nothing wrong with the strategy you are suggesting in principle. I woudl suggest an amendment to your process described in your first post. You are right to close the profitable leg first but why close that when you are at breakeven on the whole trade. Let it run until there is evidence of it topping out, then close that leg and trail a stop behind the remaining leg to get the icing on the cake.

With a strangle you are essentially making an each way bet on there being a directional move (and although low volatility helps, which is a natural response anyway of a price trading in a tight range, as it makes the position cheaper, moreso you are looking for a pairing that is rangebound/consolidating).

You are not really trading time decay, you are attempting to avoid the impact of time decay, as it hurts both of your bought options positions so your March expiry is on the near end of what is acceptable.

Hope that helps a little

Mike

Very interesting discussions. Given that retail forex offers 1:200 leverage easily with 0- 0.1 spreads on major pairs, any comments on below?

1. Use of ETF currency options to hedge 'regular' forex trades, and size the options contracts.

2. Are binary options any better than ETF currency options in any way(s)? From what I read online, binary options
seem rigged against the retail trader. What liquidity/spreads do we see on binary options from major brokers (which ones)?

3. What kind of margin/leverage do such options have in general?

4. CFDs (with high leverage) could also be thought of as options but the major drawback is that most overnight trades cost a lot (e.g., interest charges), and intraday trades don't really turn profitable. Most price changes are between trading sessions (gaps.)

Regards,
Athar.

Mike, I do think you're on to something with your let it run strategy.

However, I have a problem. I can only trade my options for 8 out of the 24 hour day. If I find myself at even money (Or better) during my 8 hour window, and don't take that opportunity to take my profit and let my other option ride free, I may wind up with nothing.

In this case, a bird in the hand is better than two in the bush. A trailing stop doesn't really work with 16 hours of the Forex day I can't really trade.

Wish it were 24/7 like Forex, but it's not. The only pair I can trade 24/7 is the EURUSD. All others I have to trade during that 8 hour window.