Question about Forex Options

Hello everyone,

I have worked out a scenario in which I will try to either buy or sell in one direction for a currency pair with spot currency, while hedging the risk of the wrong direction with Forex options contract.

In other words, if I execute an order in favor of where the price goes during the month, that's perfect. I take in the profit, and let the option contract expire while paying the premium. If the currency pair goes into the opposite direction of where my Forex spot went to, then my option contract will cover the losses, and I don't lose much compared to what I could have lost.

I'm just wondering whether that is possible, and how is it exactly done. I'm certain that there are some Forex old timers here who are capable of teaching me a bit more about Forex options, something that I've never touched before.

Thanks!

Good Luck wllen1.

Hello aaven,

Do you know something about the Forex options? Oh and yes, I'll need all the luck I can get HAHAHAHAHA.

Study time decay with options. Complicates your idea a bit :-)

http://www.investopedia.com/articles.../02/021302.asp

that's what i do. but u need to know that most retail brokers dont offer options. so u will either need to do it via 2 seperate platforms mt4 + exchange linked broker like saxobank.

or if u are capital intensive, i would recommend fxall.


that said, it is not 1 - 1 = 0 game.
there is still the chance of 1 - 1 = -2

I believe you are talking about the one of the best possible that could happen to your trade that first book profits in your spot position when it goes to profits and then you cover the losses in premium as the currency start reverting.
The trading structure you are trying is protected put:
Let’s discuss the various possible scenarios for this particular trade. There are three possible scenario form this trade, you have already discussed about the most optimistic one lets discuss about the other two possible scenarios.
Assume currency is trading at 100
And you bought put at strike price 95 with premium of 1. Now if you discuss about the other two possible scenarios
1. At expiration the currency settles at 100: in this case your loss would be the premium outgo of Rs 1
2. At expiration currency settles at 95 or below 95: in this case your losses would be the premium outgo of Rs 1 + 5 (the difference between strike price and market price of currency at the time of entering a trade). So in total 6 units
(If you buy the put at strike price of Rs 100 then you would have to shun out more premium at the time of entry depending upon the Greeks)
So if we you are happy with the outcome of the other two scenarios then you can proceed with your trade.