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Profit-proven Fx options trading system

  • #1
  • First Post: Jan 17, 2016 7:46am Jan 17, 2016 7:46am
Currency Option trading is nowhere near as complicated as a lot of people think. Unlike many other jobs, no degrees, special training or prior experience is required. Its simply not necessary to be a sophisticated institutional trader to make money with fx options. This Do-It-Yourself (DIY) kit is specially designed for a lay person, (including the technologically-challenged one) who understands simple mathematics and knows how to maintain a simple record of cash flow (incoming cash and outgoing cash), calculate net profit and return on investment .

Basic requirement is that you have done some kind of spot fx real trading or paper-trading for you to proceed further. If you don't understand how currencies are traded, then this is not for you.

A Spot fx trader can start trading in currency options in a couple of hours after having read my posts. This is very much possible. If a graphics designer helps me out, the learning curve will be cut substantially.

Investing in fx options is potentially very lucrative, but many shy away from it because they think it is a complex instrument and has higher risk than spot fx, which in fact, is not the case.

What is needed is a mind-set to conduct options trading as a home-based business. It is not time-consuming but requires discipline, patience, and simple record-keeping like any other business operation requires. Capital required is US$15,000-$20,000 which is deposited as a margin deposit with a broker. Returns starting from 40% to 80% a year are expected. An hour spent on monitoring the trades is good enough.

Patience is the key as the profits, unlike in fx spot, will not be seen until a certain time period of 90 days passes.

If you are prepared for all this, you are welcome to get free education and exposure to options trading setups and risk control management tactics.

Programmers (including students), who intend to become algo and quant traders will benefit immensely from it. If they learn coding, trading, and making money (real or paper) - doing all simultaneously - their learning curve will be short.

Armed with academic finance qualifications and hands-on experience acquired from trading or paper-trading they can look for a career with hedging funds. Sooner or later there will be a platform for them to record their trading and which they can use for applying for a job.

You don't have to fall in trap of so-called educators who take huge money from a candidate and promise them to give funds for proprietary trading.

Fortunately, as far as fx options trading is concerned, the web is rid of all these snake-oil sales people because OTC Fx options or CEM currency future options trading is considered super-specialty. If you scan Google and all other search engines quite deeply you won't find more than five web-links for Currency Futures Options Trading. As against thousands of sites focusing on providing a vast range of teaching material, signals, newsletters, advisories and research on equity and index options trading I could locate only three sources of newsletters and a couple of links on books specifically written by university teachers (not traders) for courses in fx options.

You are going to get exposure to a super-specialty species of options trading.

I will need help from those

(a) who are advanced users of Excel or programmers of VBA/Excel
(b) who can use APIs of brokers and pull live or delayed data using DDE links

and

(c) infographic/ graphic designers/artistes/cartoonists who understand fx trading so that use of verbose text use is avoided as much as possible.

Any creative person, who has own savings or parents savings to trade, can try to achieve economic freedom by trading in fx options. Before attempting real-time trading, let them first pick up the skills by practising dummy or simulated trading.
  • #2
  • Jan 17, 2016 8:08pm Jan 17, 2016 8:08pm
Interested. Please continue.
  • #3
  • Jan 18, 2016 2:05am Jan 18, 2016 2:05am
I will wait for at least 10 persons showing interest in this thread before proceeding further.
  • #4
  • Jan 18, 2016 2:15am Jan 18, 2016 2:15am
Hey HK,

Count me in
Low Risk Low Stress High Reward High Probability Trades
  • #5
  • Jan 18, 2016 2:30am Jan 18, 2016 2:30am
Quoting 919gilead
Hey HK, Count me in
Welcome my friend.
  • #6
  • Jan 18, 2016 3:46am Jan 18, 2016 3:46am
Quoting optionhk
{quote} Welcome my friend.
Low Risk Low Stress High Reward High Probability Trades
  • #7
  • Jan 18, 2016 4:26am Jan 18, 2016 4:26am
Quoting optionhk
I will wait for at least 10 persons showing interest in this thread before proceeding further.
Oh... you're one of them...Unsubscribed.
  • #8
  • Jan 18, 2016 5:33am Jan 18, 2016 5:33am
I strongly believe in leveraging on open-source educational material available on the web. There is no point in duplicating learning material. I will be posting the web-links (FF is free to verify them) and I have no affiliation with any of the organisations selling their wares. My only worry is that you should not extend your learning curve by taking in more than I suggest here.

My entire focus is on DOING and learning just enough to START doing fast.

Any way, I don't have to be too much concerned about reproducing open-source web material. There is not a single online educator or indicator seller dealing in products related to currency futures options. Retail OTC fx options brokers are not more than five in all and their spreads are so wide than a retail trader will have difficulty making money. Saxo Bank is the most reliable among them but the platform is basic. Options are based on Over-the-Counter spot (cash) fx as well as Currency Futures as the underlying. Hardly any difference is between the two underlyings. We will use CME Currency Future Option brokers instead of OTC retail brokers.

Metratrader has developed a currency options trading platform for which there are no takers. For fx operators dealing in spot currency is easy money, so they are not interested in offering fx options. A dealing platform developer, who also acts as a broker for liquidity providers, is offering MT4 options platform demo, an online trading school, and a manual - all free of cost. An excellent value: educateon. com

However, please don't get mixed up with Binary Options, a casino-like product, offered by fraudsters masquerading as Brokers operating from various countries, none of whom has a legal licence to be a broker. It is very difficult for anyone to obtain licence from UK, the only known FSA which recognizes Binary options. Binary option operators are prying upon the gullible and the greedy among us by injecting Google and other search engines with Adware.

In fact, majority of spot fx option brokers are also a risk as far as safety of funds is concerned. I would advise a trader to go for currency futures (instead of spot fx) because your money is safe with a recognized and listed exchange like CME, ICE, ISE, or Eurex etc. acting as a counter-party as against small market makers operating through retail spot fx brokers.

On Currency Futures the exchange collects interest in advance so you don't have to pay any overnight interest and your money is safe with the listed exchanges.

Terms we should be familiar with

Derivatives and the Underlying

Most of the FF members might be familiar with what is called a derivative or options trading and underlying asset. Options trading is a generic term. Options terminology and processes are common for trading of any financial instruments (or commonly referred to as the underlying) which can be equity stocks, bonds, futures, spot fx, commodities, interest-rate futures etc. etc. If you know how to trade equity or commodity options, you can trade in currencies as well.

Youtube: (a) What is a Derivative (Finance) ? one-minute animation produced by B2Bwhiteboard (2) What are derivatives? - 9 minute video -MoneyWeek Investment Tutorials

Why options?

Options serve as a type of insurance against price changes in underlying assets such as currencies, stocks, bonds, commodities, etc.

Insurance has a vital role to play in a global economic activity and such insurance-like instruments are aimed at increasing economic activity.

Let us treat option trading as a part-time home business which makes profit out of handling risk similar to what an insurance company does. You assume the role of an insurance provider. You should not consider yourself to be a trader, investor or speculator in the traditional sense while trading on the derivatives markets.

Options are about the buying or selling of risk. A buyer of options can pass risk to a third party in exchange for cash and/or some portion of your potential profits. On the other hand, a seller of options assumes someone else's risk in exchange for cash and/or a portion of their profits.

An option sellers runs home business the way a health insurance company is run. An insurance company collects a premium. If a person has cancer, smokes, drinks and works in a high risk job such as construction the insurance company will charge him a high premium to compensate for the added risk of illness accident or death. The premiums collected from all high risk clients will more than compensate for any of these individuals dying.

The same is true for markets.

Option buyers pay premium to sellers to hedge their assets. How high the premium will depend on how volatile the currency is and how long will the protection be available.

Sometimes, even if the market moves in the favor of a buyer, he may only break-even or lose money because of higher premium paid to seek protection against adverse price movement.

In short, when anyone buys options on an asset, the asset has to move in the right direction and move far enough in time for the buyer to make any money.
  • #9
  • Edited 10:35am Jan 18, 2016 6:49am | Edited 10:35am
What can Currency Options do for a saver or trader?

Caught in a web of economic stagnation and ultra-low bank interest rates, large segments of global population, which include risk-averse retirees and savers, are facing tough times.

Policy makers in major countries have ensured that banks can no longer provide income to their depositors and that cheap money is available for generating business and economic activities that can generate jobs.

Japanese have learned to live with this situation in last 20 years by becoming active investors in capital markets. Europeans are now turning to capital markets as well. Presently, they are forced to pay fees (because of negative interest rates) to keep their money safe with the banks. About US$3,000 billion of assets in Japan and Eurozone, Switzerland, Denmark and Sweden are charged with negative interest rates.

Currency Options is an unconventional low-risk investment route for income-seeking people. The intention is to help them make their transition to risk taking route comfortable and profitable too.

Currency Options trading can generate quarterly income - a return of at least 40% on a year on the margin deposit placed placed with a broker if the trader can handle the psychology part and spends time on continual management of risk on a daily basis for half an hour.

Currency Options are mostly used by institutional traders using OTC fx instruments with banks acting as counter-parties. Banks make a killing out of them by charging a spread of anything between 5 pips (on a large volume) to 20 pips. Traders on CME Globex currency future options pay between 2-4 pips as spread. Commission charged by deep discount brokers like Interactive Brokers is very low and both low-cost factors ensure the income generated is lucrative.

My mentor and I will be very happy if a simple trading system can turn a risk-averse saver -- even a high-school dropout and a technologically-challenged lay person -- into a calculated risk taker and end up as a risk manager of the caliber of any institutional trader. It can be done because 9o% of the options stuff is not required to be profitable trader. Just need to understand the core fundamental techniques to get consistent income.

My mentor is a new-age currency options evangelist and author of "New Guide to Trading Currency Options". He has promised to share his street-smart strategy and risk management techniques which have made money for him for more than 10 years. A US medical doctor by profession, and a trader by choice, Dr Naga Mummaneni has put in more than 15 years of his experience to refine his system and setup. His book (no academic stuff) on his income-generating system can help a lay person understand and act upon the options trading system.

Dr Naga Mummaneni's options trading strategy ( just one) is based on a two currency future pairs - EurUsd and UsdJpy. Dr Naga has perfected methods of risk management and it requires risk tolerance for 10% of amount invested.

It does not require a person to learn reading currency charts, or feel glued to a computer screen or forecast market direction or trends. Currency Future Options trading is to be run purely as an half-hour part-time home business.

Basically, in options lingo, it is a directionless trading system.

I personally feel it will be ideal for the traders to form a circle of friends or relatives, pool resources and learn to be a risk taker and manager by following the knowledge we will be imparting through the FF posts.

Why Currencies Futures Options vis-a-vis equity options?

 

  1. Ask/bid spread is low.
  2. Commissions don't eat away at the equity when adjustments are done
  3. World's major currencies are far less volatile than the stocks; and
  4. Have predictable trading range and mean-reversion patterns.
  5. Currency options trader hardly needs to do any particular research
  6. . And certainly is not required to put in the kind of hours a stock or equity options trader has to in order to understand pre-open Gap trading, earnings, dividends, mergers or takeovers, bankruptcies, various accounting and performance ratios and matrices.
  7. Currencies' transactions volume is said to be 40 times more than that of all global stocks market combined. Unlike the stock market the CME Globex currency future options market is open five days a week, 24 hours a day (excluding 5 - 6 pm USA time break).

  • #10
  • Jan 18, 2016 7:57am Jan 18, 2016 7:57am
subcribed
  • #11
  • Jan 20, 2016 8:10am Jan 20, 2016 8:10am
Count me in please. Very interesting!! Thank you for sharing.

HZ

PS. Hope to see another post soon.
  • #12
  • Jan 21, 2016 6:15am Jan 21, 2016 6:15am
OK great.

This is the last post as far as education of core concepts and terminology is concerned. We expect options trader to plunge into paper-trading without acquiring any more knowledge of concepts. The emphasis, I repeat, is on LEARNING and DOING it.

It is essential not to acquire more knowledge beyond what is written here. The idea is to just act and by repeated actions develop guts, overcome fear and keep the mind uncluttered and stress-free. Information overload most of the times makes us indecisive.

A beginner who has done paper-trading in buying and selling of spot currency or currency futures should understand the bare essential terminology as explained here.

An intermediate spot fx trader who knows how to use charts and indicators and can comfortably grasp the terminology and wants to get a little bit of extra knowledge will be provided with web-links to non-commercial sources to satisfy his quest for extra knowledge.

An option trader who has traded in a different underlying (like equity or index) and has some understanding of how spot fx works can treat this as a refresher and wait for the post unveiling the actual trading strategy and setup.
  • #13
  • Jan 21, 2016 6:32am Jan 21, 2016 6:32am
Excellent! Can't wait to get started.

Are you suggesting that I should not buy the ebook "New Guide to Trading Currency Options" from Amazon for reading? You have mentioned it in your previous post.
  • #14
  • Jan 21, 2016 7:20am Jan 21, 2016 7:20am
The trading strategy is from the book. The book will help you immensely, when we will be discussing the strategy.

Not at this stage.
  • #15
  • Jan 21, 2016 12:20pm Jan 21, 2016 12:20pm
The Bare Essentials

Some of the material (in edited form) is reproduced from Dr Naga Mummaneni's "New Guide To Trading Currency Options" and educateon.com's options-school-course

Contract Specifications, tick value, Monetary tick value, Strike Price Intervals and symbols Naming Conventions.

You should acquire basic knowledge about the symbol, contract specifications, minimum tick value, from a broker's web page on Products offered on their platfrom and Chicago Mercantile Exchange (CME).

In spot fx, EUR.USD is the trading symbol for Euro Dollar pair.

On CME, European Currency has its own symbol.

We will be trading on CME Globex (electronic open 24 hours run by CME) and not CME (which is open only during US hours).

Class: 6 series is currency options we will be using for our trading. Its American style options. XT is European style : we don't use this.

6 + (first letter of currency) + (Expiry period) is the symbol naming practice

6 E is European Union Currency .

6 J is Japanese yen

6E1 or 2/3/4 denotes option's quarterly expiry date.

In spot fx, pips and pips value is calculated. In Futures and Future Options it is tick and monetary tick value. Futures and Future Options have different minimum tick increments. Better to access from CME website a product guide and understand all the contract specifications.

https://www.cmegroup.com/trading/fx/files/2015-product-guide-and-calendar-fx-products.pdf

Margin Deposit, Online brokerage account and Commissions Charged

Information should be obtained from your broker :

Initial Margin (good faith deposit given to a broker)

Maintenance Margin (additional margin linked to movement of prices)

How premium earned also is counted as a part of the margin?

You need to be approved for selling (writing) options, which is more of a formality.

Brokerage: You should look for a broker who charges not more than US$3.00 (inclusive of Exchange Fees and all other charges) per contract. I am paying US$2.62 (all-in) to my broker, Interactive Brokers.


Options terminology

Call and Put

When you buy an option = you pay a premium ($ $) taken out of your account.
When you sell an option = you receive a premium ($ $) into your account

Selling a call option = at expiration of time period you are short (sold) a futures contract
Selling a put option = at expiration of time period you are long (bought) a futures contract

Strike Price, Expiration and Moneyness

The strike price is the price at which the holder of an options can buy (in the case of a call option) or sell (in the case of a put option) the underlying security when the option is exercised. Hence, strike price is also known as exercise price.

The value of an option depends on its strike prices' distance and direction from the underlying market changes. An option can be described as being in one of three states of moneyness depending on its strike price versus the market price:

In-the-money (ITM),
at-the-money (ATM) or
out-of-the-money (OTM)

Unless the strike equals the market rate, the moneyness of a Put option differs from that of a Call option:

http://educateon.com/wp-content/uplo...-Moneyness.jpg

When the strike rate of a long (buy) Put is above the market rate, we say it is in-the-money because the strike allows you to sell at a higher price.

When the strike rate of a long (buy) Call is below the market rate, we say it is in-the-money because the strike allows you to buy at a cheaper price.

When an option is in-the-money (ITM), it is more valuable, i.e. its premium is higher. ITM options are the most expensive to buy, whereas out-of-the-money (OTM) options are the cheapest.

Premium value

When buying an option, the trader pays a premium, the open premium. The premium value changes depending on the changes in the underlying market. The premium of a Put option increases as the market falls. Why? Because the Puts strike price becomes more attractive relative to the market price. The premium of a Call option increases as the market rises. Why? Because the Calls strike price becomes more attractive relative to the market price.

Intrinsic value and Extrinsic Value (also known as Time Value) of In the money options

Assuming the Euro Futures price is 1.08235 (similar to a spot price) the Strike Price of a Call is 1.085 and the premium (ask) is 0139 ticks for the call. The price is more than the underlying price which means the call is in the money.

The difference between the two is strike price (1.08500) - the underlying price (1.08235) = 0.00265
Extrinsic value will be: 01390 (premium) + 0.00265 (Difference between strike price and the underlying price) = 01555 (about 155.5 pips in spot fx).

When two or more options are combined into one strategy, they are called a spread. A spread position is entered by buying and selling equal number of options of the same class on the same underlying security but with different strike prices or expiration dates.

Futures-settled options

For trading Exchange-traded Future Currency Options, the actual physical transaction of the currency pair is not required and you do not have to exercise the option to receive your profit.

Instead, the running profit or loss of the option position is calculated for you and when you close the option trade, or it expires, cash is credited to your free balance (if the option has premium value).

Trades can be closed any time before expiry (during trading hours) to lock-in profit or reduce a loss.

Very rarely a trader takes delivery of the currency futures for speculating further in the Futures Market on the movement of the currencies. Over 95% of option transactions are closed out with an offsetting sale or purchase of the same option, or option expire worthless.

Video sources of education :

Youtube: Currency Options Step-by-Step collegefinance (12 minutes)
Youtube: Chris Verhaegh: Two Parts of Option Premium (10 minutes)
Youtube: Currency Futures and Options vs Forex (70 minutes)
  • #16
  • Jan 21, 2016 1:57pm Jan 21, 2016 1:57pm
Thank you optionhk. A bit of homework to do.
  • #17
  • Jan 23, 2016 2:42am Jan 23, 2016 2:42am
We can dream of becoming millionaires or generating income from trading in currency futures options by putting in some efforts in learning and saving money from whatever we are doing at present.

Wisdom comes from a person who has spent decades of his life in acquiring experience and expertise by trial-and-error methods.

I am fortunate to have grown up in a locality (neighborhood ) of Givers and a huge public library (Internet is displacing them for good).

Givers were always there without the Takers approaching them. That was the kind of environment I grew up in.

In its own way, the public library (passive Giver) played a key role in my life .

Fiction authors (passive Givers) equipped me with warewithal (experiencing life at second-hand) to take people as they are without judging them.

Self-help career books written by practitioners (Givers -not academicians) helped me wear a number of different hats which I enjoy till today.

Now thanks to another Giver Dr Naga Mummaneni, his book has opened up a new income-generating possibility.

It's my turn to be a Giver now.

What I wanted to explore through the FF posts is the possibility of acquiring income-earning capacity (economic freedom) without spending money on expensive courses by adopting an approach which

(a) Focusses on the essential core and fundamental 5% of what is being taught online by way of options trading education
(b) Expedites the process of becoming a self-directed online investor/trader of currency futures options
(c) Executes a simple but effective trading system and setup for directionless trading as designed by Dr Naga Mummaneni
(d) Explores the possibilities of leveraging on the advantages that fx options (mainly not to have stop-loss risk control and survive a lot of fakeouts) has over spot fx trading in designing directional trades by involving experienced fx spot traders.

I am now dropping (c) and (d) plans for lack of response from fx spot traders.

Anyone who feels not confident enough to be a self-directed investor/trader should look for experienced offline brokers (Givers) who can execute trades for you as well as hold your hand in troubled times.

Offline brokers can charge you anywhere from total US$8 to $50 per two-way (open and close) transaction. In addition, CME will take $1.62 of Exchange Fees for one-way transaction. If the option expires you pay the exchange fees for opening trade only but mentoring brokers expect to be paid for two ways in advance.

A broker ,I feel worth working with is whose Youtube Video of 70 minutes I have referred to in my post.

For (c) you have to acquire the knowledge from the horse's mouth - "New Guide to Trading Currency Options" written by new-age currency options evangelist by choice and medical doctor by profession.
  • #18
  • Jan 23, 2016 5:13am Jan 23, 2016 5:13am
I am an advanced mql programmer and interested.
pm me if u are interested. Here s part of my work:
Vucking good EA coder... https://t.ly/AZjRM
  • #19
  • Jan 23, 2016 5:54am Jan 23, 2016 5:54am
Quoting reteid2222
I am an advanced mql programmer and interested. pm me if u are interested. Here s part of my work:
I appreciate your offer. Where can I see your work?
  • #20
  • Jan 23, 2016 7:30am Jan 23, 2016 7:30am
Sorry, here s the screenshot:
http://i.imgbox.com/h9J8tksx.png
Vucking good EA coder... https://t.ly/AZjRM
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