Forex Options Strategy
Forex Options remain popular to a variety of different investors; from professional investors using forex options in times of important reports or events when the risk and spreads increase in the cash forex markets to the smaller and newer investor with a limited amount to invest. Other profit motivated forex traders use forex options as an alternative to cash simply because they are cheaper as well as options positions have the potential to generate a lot more profit than the same amount in a cash position.
Forex Options are used in a number of different methods, but essentially they are used for: (a) to capture profit or (b) to hedge against existing positions. An option provides you with the right, without the obligation to either buy placing a Call Option . or sell placing a Put Option – on a currency pair at a particular price the strike - at a certain date. A premium is paid upfront to the seller of the option for the right to buy or sell the currency pair. The market conditions at the time the forex option expiry will dictate whether or not you decide to exercise this right.
Forex Options Example
Using the most traded currency pair the EUR/USD, lets say that you have purchased the right (the option) to buy EURUSD on or before the date of the 10 th July at the price of 1.0532,.
Should the value of the EUR/USD be higher than 1.0532 on the 10 th July, you profit from the purchase by selling it for more than the1.0532.
If, however the EUR/USD is less than 1.0532 on the 10 th July, you would not want to buy at the contract price, as you would be able to buy EUR/USD at the market price instead. Remember, you are not entitled to buy the EUR/USD if you do not want to, as an option provides you with the right but not the obligation to buy or sell the currency pair
Swing Trading
Swing trading is one of the most popular and profitable forex options strategy , it can apply As the price of a currency pair moves within the general banding of a trend, the currency pair will move back and forth (oscillate) within the band of the trend. When trading currency pairs, you buy at the lowest part of the swing within a positive trend, and sell once it’s at the top. You buy calls, and then sell them for a profit. Should there be a downward trend, you would cover the currency pairs at a lower price, securing the profits. This is achieved by buying puts, and, when their value increases; selling them and taking the profit. It is a strategy that requires you to catch the oscillations at each of the extremes, collecting your profit as the currency pair moves between the extremes.