Options presentaion

Forex Options
Clearing the Cloud of Confusion

Options
A method of trading Forex that captures most of the profit potential, minimizes the downside risk, minimizes the actual trading time required (at least day-to-day), and as much as possible, reduce trading stress.

Imagine
What if you could get into a position
With no stop
And no matter how choppy it acts
You can profit from the move after a few days.
The Power of Options

Options are Scary!

Option Myths
It is Hard to understand!
They are risky!
It’s like a foreign language!

Truth – Option Mythbuster
If you understand how to trade the forex , you can easily understand Options.
Options can actually reduce risk.
Terms can be easily learned and understood.

What is an Option?
It’s a contract!
Gives you the RIGHT, but NOT THE OBLIGATION to get into a Spot forexpostion at a specified price . (Strike Price)
Has an expiration date
(set by you!)

Why Options
Keeps the advantages of Spot Forex trading
And eliminates some of the downsides.

Downsides of Spot Forex trading eliminated with options
There is no leverage in the purchase of options.
There are no stops.
There is no drawdown beyond the premium.
There is less time involved (no need to monitor positions often).
Trading with options avoids the paying of interest on leveraged positions.

Advantages to Options
Low and predetermined risk - The premium you pay.
Unlimited profit potential - the only obligation you have is the premium you pay at the beginning of the contract. After that no matter how high the value of your currency goes, you will be keeping all the profit.
Low time Commitment - Get into trades easier with if you have a full time Job.

Disadvantages to Options
Time - Options are TIME limited. They have a set number of days to perform.
Movement - The currency pair must move enough to cover the premium and then an additional amount for a profit to be made.

Let’s handle the terms!
Put
Call
Strike Price
In the Money
Out of the Money
Exercise
Premium
Expiration

Call
A Contract for a Spot Forex pair to the upside.
Call =
Call = Long

Way to remember Call
Call UP your Mother LONG distance!

Put
A contract for a Spot Forex pair to the downside
Put =
Put = Down or Short

Way to remember Put
Put Down your weapon!

Way to remember Put
If I said “You stink as a Forex Trader!”
That would be a Put Down

Why not just call them Buy and Sell?
You can BUY & SELL a CALL
You can BUY & SELL a PUT

Buy & Sell
You have to PAY to Buy something.
You GET PAID to SELL something.

Option Cheat Sheet

Buy & Sell
Buy – In the direction you think it IS going.
Sell – In the direction you think it’s NOT going.

Selling
You can Sell options on your profitable Spot Forexpostion . (covered)
You can Sell options even if you don’t own a postion. (uncovered or Naked)

Example
Ifyou don’t think the price will go any higher…
You can SELL a Call
If you don’t think the price is going any lower…
You can SELL a Put

What price will we buy & sell at?
The STRIKE PRICE.
It’s the price that is agreed to in the Option contract.
The price at which you are interested in owning a spot position.

Strike Price
You really like the GBP/USD above 1.5000
You BUY a CALL at 1.5000.
1.5000 is the “Strike Price”

In the Money
You bought a Call (up) on the GBP/USD at the 1.5000 Strike price.
If it goes UP above 1.5000?
You are In The Money!

In The Money
Any Price in your direction away from the Strike Price
1 pip above 1.5000 is considered IN THE MONEY

Out Of The Money
You bought a Call (up) on the GBP/USD at the 1.5000 Strike price.
If the price moves down below 1.5000.
You are OUT of the Money

Out of the Money
Any Price Not in your direction away from the Strike Price
1 pip below 1.5000 is considered
OUT OF THE MONEY

At The Money
The actual price is at the Strike price
When the GBP/USD is at 1.5000 you are AT THE MONEY.

Ways to Buy and Sell
The AUD/USD is currently at 79.00
If you Buy a Call at the Strike Price of 79.00
You are buying it “At the money”
If you Buy a Call at a Strike price of 79.50
You are buying it “Out of the Money”
If you Buy a Call at a Strike price of 78.50
You are buying it “In the Money”

Premium
The Price you Pay to Buy a Put or a Call.
The Price you Get Paid to Sell a Call or Put.
If you Buy something it costs you money.
If you Sell something you make money.

Premium are higher
On longer time frame Contracts – more time to the end of the Contract.
In The Money - more a contract is in the money.
High Volatility – the more volatile a pair is.

Expiration
The date the contract ends
Fully customizable.
Could be 2 days or 2 months or what ever date you choose.

Expiration
If you buy a call on the GBP/USD at a Strike Price of 1.5000 for 1 week.
At the end of the week the option will EXPIRE
If you are In the Money, you can exercise your right to the position.

Exercise

Exercise
When an owner of an option contract exercises their right to the position at expiration. If it is IN the Money.
It puts you into an actual Spot Forex Position
You cannot Exercise options before expiration.
(getting into the Spot position before expiration.)
You can only CLOSE (or get out of) the Contract early.

Closing an Option
If you Bought a Call on the GBP/USD at 1.5000 expiring on 6/28/10
To close it…
SELL a CALL on the GBP/USD at 1.5000 expiring on 6/28/10
Closing is not the same as Exercise!!

Exercise
If you bought a Call on the GBP/USD at the 1.5000 strike price for 1 week.
At the End of the week, if the GBP/USD moved to 1.5200. You would be given a spot position in your account that is up 200 Pips.
If you paid 100 pips for the premium, you would be 100 pips profitable.
You can hang on to the spot position for as long as you like.

Exercise
If you bought a Call on the GBP/USD at a 1.5000 strike price for 1 week.
At the end of the week the price drops to 1.4900. The option would Expire worthless and you could not Exercise the option. It is Out of the Money.
You are out the Premium paid.

Anatomy of an Option Contract
Currency Pair
CALL or PUT
BUY or SELL
Strike Price
Expiration Date
LOT SIZE

Options Quote
You get quotes before you enter a contract
Adjust your Strike Price and Expiration to get a good Premium

Options Broker
IKONGM.COM
Core Options Client - quotes an places option orders
Ikon Platinum – Trading platform where your spot postions are exercised to.

Quote Screen

Quote Examples GBP/USD 1.4925

GBP/USD Call Out of the Money

GBP/USD Put At the Money

AUD/USD Call Quote

USD/CHF Put Quote

EUR/JPY Put Quote

EUR/USD Put quotes

GBP/JPY Put Quote

USD/JPY Put Quote

Simple Strategies
You think the GBP/USD is going to go up based on you Market analysis. But you don’t know when, and you don’t want to miss it!
Buy a CALL
No matter how volatile the Market is. As long as it is above the Strike price at Expiration

Simple Strategies
You think the GBP/USD is going to go down based on you Market analysis. But you don’t know when, and you don’t want to miss it!
Buy a PUT
No matter how volatile the Market is. As long as it is below the Strike price at Expiration

Simple Strategies
You Think that the GBP/USD will not go any higher. And you want to profit from this Knowledge.
Sell a Call

Simple Strategies
You Think that the GBP/USD will not go any lower. And you want to profit from this Knowledge.
Sell a PUT

Simple Strategies
You have no idea which way a pair is going to go or a big news event is coming.
Buy a Call
&
Buy a Put
As long as there is movement you make money

Protection Strategy
You are in a profitable GBP/USD position to the upside. You want to Insure you profits?
BUY a PUT
If the position goes against you, you will still make money.
Eliminates RISK!

Make More Profit
You are up hundreds of pips on the GBP/USD long position. But now it is consolidating.
SELL a CALL (Covered)
You make the Premium plus your Profits made SO FAR on your Spot position. But no more Profit if it keeps going Up.

Remember
When Buying, it has to move enough to cover the Premium.
It has to move in your direction before expiration.

More Strategies and Education
Lesson 35
Forex Early Warning Options
Jeannettes Option Information

Wordy Conclusion
Some of the main dangers and frustrations of traditional Forex trading methods (downside risk, unexpected sentiment changes, time-intensive) can be avoided by using options to express our market position.
Limited risk, a high profit potential, no use of leverage, not time-intensive, and no need for stop loss orders all makes trading options a winner

Simple Conclusion
Avoid choppy moves and stop outs!
MAKE MORE $$!
Trade with a Job Easier!!
Less Risk!

Where to Start
Focus on 1 Strategy
Look for it when analyzing the Market
Get Quotes and Papertrade!

Slideshare.net/DetroitForex
Thank you!

Options presentaion

by Metro Detroit Trend Traders on Jul 12, 2010

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Options presentaion — Presentation Transcript