Now let’s look at the options that our company works with. You will receive recommendations to buy or sell these financial instruments from us quite often.

WE BUY PUT and CALL options

When we BUY an option, we pay for it. When we SELL an option, we are paid a premium for this operation

In this article we consider our operations for BUYING an option.

An example of a recommendation to purchase an option dated January 13, 2022.

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Option EURUSD. PUTBUY. Strike 1,1450. Expiration 14.02.22. Cost now- 0,0071 point

Explanation; In this recommendation we offer our clients a buy vanilla put option. Strike 1.1450. Expiration 02/14/22. The price now is 0.0071 points.

Reason: we assume further strengthening of the dollar against the euro, as well as in relation to other currencies. But the market can repeatedly knock out our stops. If we now buy a put option and pay $710 for 100K EURUSD, we can feel relatively calm. When the rate moves from current levels to 1.1380 -1.1370 is already “at home”. However, a movement to 1.12, or even lower, is most likely possible.

What is a “strike”? This is the rate of a currency pair. In our example – 1.1450.

What is “expiration”? The date until which the option will be valid. In our example, we purchase an option for a month. Expiration date – 02/14/22. But we can purchase an option for any period from a week.

When we make a recommendation to purchase an option, we consider many different factors. From here we calculate the period for which we buy this option. The longer the term, the higher the value of the option. For example, in the option under consideration, we pay for a monthly option 0.0071 points in the EURUSD pair or $710.00 with an option amount of 100 thousand. And the cost of the same option for two months would cost us at least 0.0120 points or $1,200.

What is “at home”? Option “with our own” in our example. Strike – 1.1450. PUT option, we predict the movement of the currency pair downward according to the chart, that is, the strengthening of the dollar against the euro. We paid 0.0071 points for the option. When the rate reaches 1.1379, we will go to zero, that is, we will not lose anything from the 710 dollars we paid for the option (we will get back the money that we paid for the purchase of the option – 710.0 dollars), and we will even earn a little (such system). Everything below the rate of 1.1379 already generates our profit. 1.1375 – earned $40 per 100 thousand option, 1.1305 – earned $740, and so on.

Can we close (implement) (expiration) an option ahead of time, that is, before the option expires? Yes, and this happens with most options.

Based on the recommendation to buy the option dated 01/13/22 (see above),  our clients closed (executed) the PUT EURUSD option on 01/27/22 and were able to earn:

if you bought an option for 100 k – the profit was 1640.00 USD

those who bought at 1.0 mio – the profit was 16,400.00 USD

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In what cases do we recommend that you exercise (expirate) an option before its expiration date? By the way, in 95 percent of options trading cases, we exercise them before the expiration date.

  1. When we see that we already have a certain profit, but we assume that further movement of the exchange rate in our direction may be difficult or associated with the risks of a rollback. But why not exercise the option if, with $710 paid for it (position – 100k), we already have a profit of $420? Invested $710?, took back $1130. Not bad?
  2. When we see that our expectations of the exchange rate movement are not justified, and market dynamics suggest either movement in the opposite direction or a sideways trend, which is absolutely unprofitable and unprofitable for us. In this case, we give a recommendation to exercise the option with losses. With relatively small losses. For example, we paid $710 for an option, but according to our recommendation, we closed the option when its value was $520. Yes, you lost $190 on this trade, but not $710, right?

The main thing is to exit the position, the option, in time. Don’t “choke” from greed (come out with a necessary and sufficient profit) and don’t “live on hope that dies last” (come out with a reasonable loss, not a complete one).

Why do we trade options? It would seem that there is a Forex spot – everything is clear and understandable. I sold 100k at the rate of 1.1450 and there is no need to count 71 points until the profit starts to trickle in. You can already close your position altogether on the break-even option market – 1.1379, receive your earned $710 and go “smoke bamboo”.

That’s it. But let’s not forget that the market is volatile. And before it gets to the rate of 1.1379, the market may well go to 1.1520, which will knock out your stop loss with a loss of $700.0, then drop to 1.1400, then somewhere else, and only then more -less obvious downward trend towards the strengthening of the dollar.

Option is our peace of mind. No stop losses (although you need to track them), just waiting. Yes, without big profits like on the spot, but also WITHOUT BIG LOSSES.

Ordinary trading activities, as in commodity transactions. I invested $710 in a product (option) and turned the money around profitably. I invested money in a product, something went wrong (the supplier deceived me, the product deteriorated, the tax authorities “ran in”, 50 other reasons) – I “pulled out” the money with some loss.

Why do brokers encourage traders to trade on the FX spot rather than the options market, and why do traders rarely engage in options, preferring the risky FX spot?

That’s why:

  1. Firstly, most brokerage houses allow you to trade on FX spot with a trading account of 50.0 USD, providing a leverage of 1:200, and as you understand, greed and passion, plus the trader’s inexperience, almost immediately “sweeps out” from his account, be it 50 dollars, be it 500 dollars, and then the trader goes looking for new money to replenish the account and “adrenaline”. In order to trade options (there is no margin leverage in options trading), you need to have at least $500-700 in your trading account in order to work with a 100k option.
  2. 95 percent of brokerage houses do not provide their clients with the opportunity to trade options, since client trades on spot are much more profitable for the brokerage house than options.
  3. 98 percent of traders don’t even want to learn options trading. The power of spot trading habit. Yes, indeed, options trading is more complex than spot trading. You need to master a more significant amount of knowledge. All these “Delta”, “Gamma”, “Theta”, “Vega”. But we don’t refer you to textbooks or long-term practice. All you need to do to trade options is to read our recommendation, log in to your broker, open the options trading window, set the values ​​according to our recommendation: “CALL or PUT (up or down) “Strike”, “Date of expiration” (expiration date) and most importantly, make a transaction: “BUY or SELL (Sell or Buy)

WHAT IS PUT. This is the downward movement of the currency pair rate on the chart in front of you. Accordingly, if up – CALL. This is how “tricky” it is in options trading. Yes, we can compare it with the spot trading term – SELL, which is also DOWN, but this is not entirely correct, since we can both buy – BUY and sell – SELL options.

Let’s look at what you will need to do when you receive a recommendation from us to BUY an option. For illustration purposes, we use the trading interface of one of the well-known brokers.

An example of a recommendation for purchasing a CALL option. Let me clarify that the options we are considering are called VANILLA. Unlike binary ones, which we will consider in other articles.

15.02.23

RECOMMENDATION

Option EURUSD. CALLBUY; Strike – 1,0675; Expiration – 08.03.23. Cost now – 0,0094,5

What you need to do.

  1. Set the operation. Select CALL
  2. Select the amount. For example: 100,000
  3. Set a price – strike: 1.0670
  4. Set the Expiry date: 03/08/23. As a rule, with all brokers we can buy or sell an option for a period of one week. For certain reasons, in our specific example we choose three weeks from the option purchase date: 03/08/23

We look at how many points we need to pay for the option and in the information we look at how much it will be expressed in money.

For the option we will need to pay 0.0094.5 points, which with an amount of 100,000 will be 945.00 USD

Press the button: BUY

That’s all you will need to do. As you can see, press a few buttons. Having purchased an option in the future, we will be guided by the strategies and tactics described above. Every day we will record the status of our option (just as you can see in your account with your broker), and we will also recommend further actions with this option depending on the situation on the market.

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