Option Hedging Strategies
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Thread: Option Hedging Strategies

  1. #1
    I'm posting this thread which will hopefully become a source for Forex Options egies.
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    I haven't used options in Forex to-date but would like to use then as a hedging tool to get a place position to reduce a possible loss instead of using stoploss orders. I can see that the advantage of hedging with Forex options instead of working with a stop would be that we can remain on the market despite the moves against our place position and still possess an infinite profit situation. The disadvantage is that we would need a good risk reward system which has a gain in the place position before we make a profit as we need to pay for the option premium.

    Now for instance our trading systems gives us a sign that speculates that the exchange rate of the GBP/USD will decline during the next month. We market 1,000,000 GBP on margin in the spot price of 1.8000. If we want to protect this position we would normally decide on a stoploss the GBP climbs at maybe the daily ATR.

    Now another way would be to protect our position by a infinite loss using an alternative. As a holder of the option we will maintain the potential for an infinite profit because our place position can remain open before the date of the option. If our place position stays and moves against us there will increase in value offsetting the place losses giving a entire loss scenario of the option premium to us. So this situation of a choice instead of a stop loss order will allow us to remain in the market more that wouldn't be possible using a stoploss order. We could find ourselves re-entering the market many days after rebounds, particularly in a market with higher volatility.

    Please let us know if you use an alternative egy as part of your risk variable when trading Currency Market along with the egies which have been effective for you.

  2. #2
    Quote Originally Posted by ;
    With Saxo however few queries arise

    1 - Can Saxo recognise that your position is CC or Safe Form and cross margin? If you do so in Equity then CC or PP is a recognized Combo order and double margin is not required

    2) Using Saxo FX options means just one market maker! So you're the mercy if Saxo!
    Hello Moksha

    I'm quite sure that double margin in case of CC/PP is not required provided that price increases, because margin required . margin available is always being calculated. If price rises in case of a CC, then Your place position increases in value as the value of the call declines. In the point price reaches the strike of the call the floating profit/loss should be continuous and margin required be continuous.
    I'm uncertain about the margin requirements if price moves below Your entry price for the place position.

    Yes, unfortunately the FxOptions market is not quite as big as the place market, so in a sense we are at the mercy of the market maker. I believe that the actual problem about this are the spreads. I really don't think that you'll be not able roll a place or to get out of. You just need to pay the spread.

  3. #3
    Quote Originally Posted by ;
    Late last week I started my 4 positions for January expiry. Both using my preferred egy of the strangle. I have not maintained any money for almost any trades that were additional this moment. On Friday both USDCAD GBPUSD struck their inherent regression points, and the premiums were high enough for me to have the ability to sell below and above in 3 standard deviations, because there was still 40 days until expiry. Since then the price of the sold strangles has dropped by 10 pips on one 15 pips on the other. That is another little tip, if you sell...
    Cool - thanks.
    That kind of trading is the perfect match for me and my temper.
    I'll check out the cellphone alert.

  4. #4
    So is anybody currently doing MArried Call / Married Place?
    I don;t understand if demo on saxo lets FX options

  5. #5
    Quote Originally Posted by ;
    So is anybody doing MArried Call / Married Put with Saxo?
    I do;t understand if demonion on saxo allows FX alternatives
    Personally I am not, but Saxo does allow FX choices on the demonion. A number of the label partners do not.

    Ikon also works out that the margins correctly, offsetting margins from place alternatives, but their demo doesn't have the two accounts linked (in real life it's linked).

  6. #6
    Quote Originally Posted by ;
    Hear is a list of my current open positions if you look under the short positions of this pdf file.
    Cool portfolio. You are doing good.

    James, can You elaborate somewhat on the analytical steps which you take on Your selection of best trade setups?
    Are You like Skoda looking at confluence support/resistance, Std. Deviations and price action, or can you find Your trades?

    I'm still learning

    Cheers and continuous trading.
    T

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