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Let's Trade Options

  • #10,181
  • Aug 16, 2015 6:53pm Aug 16, 2015 6:53pm
Quoting MadLu
Hi folks, I'm after a bit of advice/info on fx options. I have savings in AUD (in Oz) but I live overseas, and I want to protect against further declines in AUD/USD, i.e. protect the value of my savings while I'm overseas.
Whether it's worth doing depends on how much you have at stake and what move in AUDUSD would make you unhappy.
If you buy a put, you will pay for the time premium. And there's no telling if your put will make money before the put expires.
The easiest option is to convert some of the money to US dollars and have a plan for the rest (e.g. sell 1/3 if it goes up by x%, or down by y% etc.)
However, if you do want to look at options, and if the amount of money is reasonably substantial, there is a somewhat crafty but riskier alternative to buying puts: you could sell calls against your Aussie $.
You can do this either
1. by selling a call (or calls) on an AUD future. As ZS has said, this is very risky as each underlying AUD futures contract is for 100K USD, or
2. if the amount is smaller or you just would prefer less risk you could sell calls on FXA. Not sure how much liquidity there is on those but it could be worth a look.
NB if you didn't shove the AUD into your trading account your broker would probably think you were selling naked calls (whereas in reality you would not be). However if you chose IB as your broker you could fund your account in AUD. Not sure exactly how it would work out because AUD futures and FXA are both denominated in USD but it might be worht looking into. If you're committed to holding the AUD for a period of years you could make a nice bit of money selling the calls...as long as you realise if AUD spikes you'd probably be losing out etc.
I have no clue what I'm talking about.
  • #10,182
  • Aug 16, 2015 8:04pm Aug 16, 2015 8:04pm
Quoting MadLu
Hi folks, I'm after a bit of advice/info on fx options......Any info, links, advice, direction, etc. on how to proceed would be greatly appreciated! Cheers, Luce
Hi Luce, if I were a better fx trader I might be a good person to ask about this - but I'm not. Most of us here prolly concur that the USD is going to strengthen significantly in the near- to mid-term, so one simple thing you might do is convert your AUD to USD. As far as options go, afaik, there just are not any very liquid AUD related options - you might try something creative with FXA, but there's not much liquidity there, and since you have little experience, you might quickly bite off more than you can chew.

Something even trickier would be to look at hedging in an underlying that is well correlated with AUD (gold?) - but tricky is fine for speculators, maybe not so for someone trying to protect their savings. Anyway, sorry I could not be of more help.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,183
  • Aug 16, 2015 8:08pm Aug 16, 2015 8:08pm
Quoting Boy Wonder
Yaaah, y'do realise geezer does NOT mean old bastard in British English....GEEZER! http://separatedbyacommonlanguage.bl...6/geezers.html
lol, I did not know that about "geezer", BW, thanks for that. I so much would love to visit old England, seeing as it was once the home of me ancestors, back in Stonehenge times, and I could learn about the geezers, and buggery, and see where Bilbo Baggins lives, down in the Shire, and so on....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,184
  • Aug 16, 2015 8:17pm Aug 16, 2015 8:17pm
Quoting The Fool
maybe not so much to ask, USO weekly candles w R>$2 pretty common - If you wanted to spend about the same amount on a 2-week strangle, you'd have to widen to Aug4 $12.5/$15.5 - that would be 11c + comms but you'd get a little more time to run
if /CL pins $42, USO will stick $14.00, and a $2-wide weekly or 2-week strangle could be worth a shot --- /CL $42.01 atm
"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,185
  • Aug 16, 2015 11:15pm Aug 16, 2015 11:15pm
Quoting Boy Wonder
{quote} Yaaah, y'do realise geezer does NOT mean old bastard in British English....GEEZER! http://separatedbyacommonlanguage.bl...6/geezers.html
I like the "Diamond Geezer" moniker ... . Now I have learned something today ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #10,186
  • Aug 16, 2015 11:55pm Aug 16, 2015 11:55pm
Quoting MadLu
Hi folks, I'm after a bit of advice/info on fx options. I have savings in AUD (in Oz) but I live overseas, and I want to protect against further declines in AUD/USD, i.e. protect the value of my savings while I'm overseas. I opened an OANDA account and took a short AUD/USD position, but the leverage and volatility kept me glued to my computer day and night (not appreciated by husband and toddler) and frazzled my nerves. After some googling, it looks like maybe buying an option might be a better hedge for my savings. I won't have to watch it or pay...
The other thing I neglected to mention was swap/rollover/carry. In a AUD/USD short trade, you could be profiting from the slide, but you are also paying swap/rollover for the privilege (something that a lot of forex traders simply ignore or overlook). This is because of the interest rate differential between AUD (what is it, like 3%?) and USD (which is like 0%). This is one of the primary reasons I would never short AUD/USD and NZD/USD in spite of the fact that they were weakening against USD. I usually looked to go long AUD via either EUR/AUD short or GBP/AUD short (in order to not get dinged with negative swap), with the preference being for the former, in order to take advantage of the positive swap/rollover/carry I would receive from being long AUD. GBP/AUD tends to be wild and volatile ... .

Speaking of which, the Lira used to be one of my favorite, long-term carry trades when paired with the Euro; the swap is deep ... . But like most emerging market currencies, the Lira is hugely in the crapper:

Attached Image (click to enlarge)
Click to Enlarge Name: EURTRY Daily.jpg Size: 134 KB


... as is EEM, the iShares Emerging Market ETF. I've looked at setups in EEM and/or EDZ several times, but have yet to pull the trigger on a setup. My thinking is that EM's got dinged on the QE taper, and they're probably going to get dinged again on interest rate hikes (hell, they get dinged in every "risk off" cycle, it seems). Unfortunately, some of that may be already priced in here .... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #10,187
  • Aug 17, 2015 12:08am Aug 17, 2015 12:08am
Quoting ZebraSquirl
{quote}EEM, the iShares Emerging Market ETF. I've looked at setups in EEM and/or EDZ several times, but have yet to pull the trigger on a setup. My thinking is that EM's got dinged on the QE taper, and they're probably going to get dinged again on interest rate hikes (hell, they get dinged in every "risk off" cycle, it seems). Unfortunately, some of that may be already priced in here .... .
Just looked at the darn thing again ... . Just not enough juice in it to piddle with unless I get overly aggressive and assume that it's going to stick to the expected move. IVR's at 56; maybe I'll consider something if it appears on my 70+ IVR radar when the options might be a little juicier.

The other sector ETF I looked at was IYR, figuring that there'll be some modest weakening of the real estate sector post-hike; haven't traded it for it seems like several months ... . IVR's sub-30, and it's actually looking bullish from 7/1 to present, not something I expected.
Fireworks are fun ... as long as you don't blow your fingers off.
  • #10,188
  • Aug 17, 2015 12:20am Aug 17, 2015 12:20am
... and TF's got me looking at USO again ... . I've been literally looking at it off and on for several months, but haven't made a single trade in the damn thing. Here's where my limiting myself to just proxy options is unfortunate; I think a play in /CL would like have more meat on the bone than a USO set up ... . Would at the very least like to have that gun in my holster ... . Working with USO or the other oil proxies is like having to use a pea shooter ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #10,189
  • Aug 17, 2015 12:25am Aug 17, 2015 12:25am
USO leaves a lot to be desired but it's ok, /CL much better for st trades, I just can't trade it in the IRA's is all
"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,190
  • Aug 17, 2015 12:28am Aug 17, 2015 12:28am
Quoting ZebraSquirl
... and TF's got me looking at USO again ... . I've been literally looking at it off and on for several months, but haven't made a single trade in the damn thing. Here's where my limiting myself to just proxy options is unfortunate; I think a play in /CL would like have more meat on the bone than a USO set up ... . Would at the very least like to have that gun in my holster ... . Working with USO or the other oil proxies is like having to use a pea shooter ... .
Looking at (fairly) cheap USO debit spreads with a bullish assumption, but that would probably require a break back above 16 to be profitable ... . An Oct 2nd 15.5/17.5 long call vert goes for .20 with a max profit potential of 1.80 with a BE at 15.70 ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #10,191
  • Aug 17, 2015 12:30am Aug 17, 2015 12:30am
Quoting The Fool
USO leaves a lot to be desired but it's ok, /CL much better for st trades, I just can't trade it in the IRA's is all
Need to make a mental note of that ... . At some point will have to start juggling balls in both an IRA and non-IRA environment ... . That'll be a hoot ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #10,192
  • Aug 17, 2015 12:31am Aug 17, 2015 12:31am
Quoting ZebraSquirl
{quote} Looking at (fairly) cheap USO debit spreads with a bullish assumption, but that would probably require a break back above 16 to be profitable ... . An Oct 2nd 15.5/17.5 long call vert goes for .20 with a max profit potential of 1.80 with a BE at 15.70 ... .
Not sure 45 DTE would be enough time for that to work out (never know, but I've not had a great deal of luck with debit spreads working out without a roll ... ).
Fireworks are fun ... as long as you don't blow your fingers off.
  • #10,193
  • Aug 17, 2015 1:42am Aug 17, 2015 1:42am
Thanks for your replies folks. I'm not really keen on changing the AUD into USD, or putting a lot of it into a trading account, because at the moment it's in an offset account against a mortgage. I've got about 200k to try to 'protect'. I try to wrap my head around selling calls. I suppose if I've got the cash to complete the deal, worst case scenario is I end up with what I've already got, plus the premium I pocket. If I've understood that correctly. I'll check out the links ZebraSquirl and try to educate myself a bit better.

Just thinking, I suppose if the swap rate was good, I could change some of the AUD into USD and then open a short USD position as a hedge, and pocket the interest.

So many ways to do things. Probably not worth it for the amount I have, but it's the first time I've had any real cash in my account and I don't it to just shrink away!
  • #10,194
  • Aug 17, 2015 1:19pm Aug 17, 2015 1:19pm
Quoting The Fool
{quote} lol, I did not know that about "geezer", BW, thanks for that. I so much would love to visit old England, seeing as it was once the home of me ancestors, back in Stonehenge times, and I could learn about the geezers, and buggery, and see where Bilbo Baggins lives, down in the Shire, and so on....
LOL
I have no clue what I'm talking about.
  • #10,195
  • Aug 17, 2015 2:01pm Aug 17, 2015 2:01pm
Quoting The Fool
if /CL pins $42, USO will stick $14.00, and a $2-wide weekly or 2-week strangle could be worth a shot --- /CL $42.01 atm
I did the 1-week USO $13/$15 strangle for 7c. Not seeing /CL move much yet.....

...I'll need /CL >$46 or <$39 by Friday just to b/e......
"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,196
  • Aug 17, 2015 2:31pm Aug 17, 2015 2:31pm
OK I'm back on the short ES train again. But rather than short the calls - which is expensive in margin terms - I'm long a couple of Dec 18 2000Ps. I'm not really big on buying options but I'm also not big on getting caught with my pants down selling naked options either.
I think equities are going to struggle here. If I'm right, we should at least see a test of the bottom of the range. If I'm wrong, then TF is probably right and a tag of the 2135-ish area is probably on the cards, in which case, the plan as it stands would be to add another 2000P there, and/or maybe start shorting calls there.
I have no clue what I'm talking about.
  • #10,197
  • Aug 17, 2015 2:36pm Aug 17, 2015 2:36pm
watching oil, watching market volume - crazy shit can happen when volume gets thin
"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,198
  • Aug 17, 2015 5:04pm Aug 17, 2015 5:04pm
Looking at the chart below, it seems to me that going back the last 5 years every time the NYSE Summation Index has plunged that occurrence has been accompanied by weakness significant losses on the SPX, as highlighted on the chart.
Until 2015.
Note also the weakness of the $NYSI since 2014, and that levels as low as this in the last 5 years were accompanied by very steep losses in the $SPX.
Something is rotten in the state of Denmark.
Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 54 KB
I have no clue what I'm talking about.
  • #10,199
  • Aug 17, 2015 7:03pm Aug 17, 2015 7:03pm
1-month SPX straddles ahead of the September meeting, as analyzed by GS:

Attached Image


http://www.zerohedge.com/news/2015-0...mber-rate-hike

I don't disagree with what they say; the question in my mind is which sie of the straddle is going to be hit first?
I have no clue what I'm talking about.
  • #10,200
  • Aug 17, 2015 8:56pm Aug 17, 2015 8:56pm
Quoting The Fool
{quote} I did the 1-week USO $13/$15 strangle for 7c. Not seeing /CL move much yet..... ...I'll need /CL >$46 or <$39 by Friday just to b/e......
SNOOZE
"If The Fool persists in his Folly he will become wise." - William Blake
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