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The first trade that I'm posting on this thread is:
SHORT USD/CAD
This is the weekly chart
This pair has been going up for around 3 years, and now changed direction and has already fallen for 14% of its value.
An important thing to underscore it that this new (3 months old) downtrend had only small retracements, so it is relatively safe to trade with a not-too-large stop loss.
Current SL: 1.307
TP: I don't use a fixed take profit, I let the trade run my way until a sizable retracement occurs.
I will post update on this trade as things evolve, and I will write here when I close it.
SHORT USD/CAD
This is the weekly chart
This pair has been going up for around 3 years, and now changed direction and has already fallen for 14% of its value.
An important thing to underscore it that this new (3 months old) downtrend had only small retracements, so it is relatively safe to trade with a not-too-large stop loss.
Current SL: 1.307
TP: I don't use a fixed take profit, I let the trade run my way until a sizable retracement occurs.
I will post update on this trade as things evolve, and I will write here when I close it.
- #4
- Apr 24, 2016 1:08am Apr 24, 2016 1:08am
- Joined Feb 2014 | Status: trading bank levels | 8,143 Posts
- #5
- Apr 24, 2016 2:11am Apr 24, 2016 2:11am
- Joined Feb 2014 | Status: trading bank levels | 8,143 Posts
- #6
- Apr 24, 2016 3:02am Apr 24, 2016 3:02am
- Joined Feb 2014 | Status: trading bank levels | 8,143 Posts
yeah I do use options on longer-term trade setups. I don't use binary options brokers I structure my trades via more reliable outfits (Interactive Brokers).
The way put/call longer-term works in simple terms is that there is a break even price which is some distance from your entry - GU for instance 200-300+ pips from current bid, and then once the price moves beyond the price it's pretty much a regular spot position, so say you bought 1 mln notional GBP USD call option to expire end of 2016 it will move to break even once GU is @ 4600 and you will be + 10K USD once we are @ 4700 etc, also option will gain value faster closer to expiry date.
Overall very effective structure longer-term since it trims your risk exposure.
The way put/call longer-term works in simple terms is that there is a break even price which is some distance from your entry - GU for instance 200-300+ pips from current bid, and then once the price moves beyond the price it's pretty much a regular spot position, so say you bought 1 mln notional GBP USD call option to expire end of 2016 it will move to break even once GU is @ 4600 and you will be + 10K USD once we are @ 4700 etc, also option will gain value faster closer to expiry date.
Overall very effective structure longer-term since it trims your risk exposure.
- #7
- Apr 24, 2016 4:12am Apr 24, 2016 4:12am
- Joined Feb 2014 | Status: trading bank levels | 8,143 Posts
- #8
- Apr 24, 2016 9:44am Apr 24, 2016 9:44am
- Joined Dec 2012 | Status: On Life's Path | 2,076 Posts
{quote} Hello Asgcorp, you are the first to post in my threadDo you use options yourself? I actually tried to learn more about options in the past, but from what I read about binary options, it seems that brokers offer mostly shorter term options, and that the payout isn't anywhere close to 100% (I read it's usually 65%-70% on longer term trades). But I don't really know much about the topic, so if you know more, please tell.
Hi Xumm,
Below is a copy & paste of a post from a couple years ago referring to options. I used stock/equity options in the example but the same principals apply to forex. Binary options are completely different than what I'm discussing & probably why you didn't hear much good about trading them :-) The profit potential of plain vanilla options can be the same as trading the actual spot but losses can be much less.
I'll delete this post if getting too far away from the topic of your thread :-)
One of the main benefits of options trading is that it requires so much less capital than to trade the underlying stock so I think someone with limited capital is much better off to trade options than stocks. You can get so much more exposure with options than with the stock. The time decay is definitely something to pay attention to but not too difficult to cover that cost. You could take almost any stock portfolio & cut the dollar amount required by 75% and still have the same exposure to the upside & dramatically reduce the downside risk. The reason money managers don't suggest this is because they get paid for AUM (assets under management).
Example:
XYZ stock trading @ $50
Buy 100 shares of stock = $5,000 investment
Buy 1 $45 call(option equivalent to 100 shares)=$500 investment
Stock goes to $60:
Stock investment profit =$1,000 (20% return)
Option investment profit =$1,000 (200% return)
Stock goes to $30:
Stock investment loss = $2,000 (40% loss)
Option investment loss =$500 (100% loss)
***Better to have 100% loss than 40% loss when looking @ the dollar amount.
***I didn't allow for premium (time decay) but going far enough in-the-money removes most of the premium.
GE (General Electric)
Current Stock Price = $26.92
Jan. 25 Call = $1.99
So paying $7 premium for an option that expires in 2 months.
100 shares = $2,692 investment, $25 Call(option) = $199 investment
***Even if I had the money, why invest nearly $2,700 when I can invest $200 & have the same profit potential?
- #9
- Apr 24, 2016 9:49am Apr 24, 2016 9:49am
- Joined Feb 2014 | Status: trading bank levels | 8,143 Posts
srt +++ good post. Binary options and brokers mostly are scams / con artists.
What you pointed out is vanilla options and it's serious trading business.
What you pointed out is vanilla options and it's serious trading business.
- #10
- Apr 24, 2016 10:26am Apr 24, 2016 10:26am
- Joined Dec 2012 | Status: On Life's Path | 2,076 Posts
{quote} Thank you Srt, your post made things more clear to me.
Options spreads are wider than spot so transaction costs are higher so getting in & out with 5 pips or less won't happen. Spreads aren't much of a factor with long-term trading when you're going for 50,100, 500 pips. I've traded options for 15-20 years but never for scalping.
The "real" example of using GE stock had only a 7 cent premium so not far at all from BE. So if GE moves from $26.92 to $28.92, the stock investor will have profit of $200 & the option investor will have profit of $193 so not much of a difference. The closer to the money you buy the option, the more premium you'll pay so a bigger move needed to get to BE. Options can be complicated or they can be VERY SIMPLE. Just depends upon how you want to use them. If just buying calls/call spreads or puts/put spreads, then mainly need to understand the basics of options & the premium paid. No need to get too deep into studying the greeks. Best to buy options when volatility is low to pay less in premium. If buying call/put spreads then timing doesn't matter as much since you're selling premium at the same time as buying premium.
- #11
- Apr 24, 2016 11:09am Apr 24, 2016 11:09am
- Joined Dec 2012 | Status: On Life's Path | 2,076 Posts
{quote} I see.I searched the meaning of "near the money" and "put spreads", and I think I understand everything you said now. Probably the best thing for me would be to simply use call/put options (not spreads) with an expiry of like 6 months. By the way, if I want to close my trade before the expiry date of the options, while I am in profit, can I do it without too many penalties? Thanks again for the info.
"European-style" options must be held until expiration.
Investopedia is a good site to get information.
Buying 6 month options will have more premium than 3 month options but the decay will be slower.
Buying options closer to the money will have more premium costs than buying options farther away from the money but then there's more upfront cash needed & more loss exposure in case of a large drop. I prefer to buy deeper in-the-money options so I pay less premium. Then it acts just like owning the underlying except you have a limit to the losses & it requires much less capital.
http://www.investopedia.com/articles...ediaSiteSearch
***Don't read too much about the "SPOT" options or you'll get the 2 confused. "SPOT" options is binary.
- #12
- Last Post: Apr 24, 2016 11:24am Apr 24, 2016 11:24am
- Joined Dec 2012 | Status: On Life's Path | 2,076 Posts
