Forex option expiry

This is a discussion on Forex option expiry within the Forex forums, part of the Markets category; Hello fellow traders, Today I noticed that the 14:00GMT expiry of USD/EUR options seemt to act as some sort of ...

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Old Apr 20, 2005, 11:46am   #1
 
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Forex option expiry

Hello fellow traders,

Today I noticed that the 14:00GMT expiry of USD/EUR options seemt to act as some sort of magnet.

My questions is if there is anyone who knows where I can find option expiration dates and their values? Also if anyone currently is applying this information to their trading?

If what I belive is true, my trading can be made a bit easier (less screen time)

Regards,

S.R.G.
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Old Apr 20, 2005, 12:22pm   #2
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Since most forex options are traded in OTC market, nobody clearly knows the details of their strike prices and amounts. There are always some rumors like "a large amount of 1.3000 eur/usd options will expire at 10:00 ET", you can believe it or not. But IMO, it can hardly be a component of a strict trading strategy.
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Old Apr 20, 2005, 12:30pm   #3
 
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S.R.G. started this thread Hello Hayek,

Thank you for your answer.
Regarding expiry dates this should be "public information" or?
Since so far eur/usd action is like gluuuue. ;-)

Last edited by S.R.G.; Apr 20, 2005 at 12:32pm. Reason: Additional
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Old Apr 20, 2005, 2:20pm   #4
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Quote:
Originally Posted by S.R.G.
Hello Hayek,

Thank you for your answer.
Regarding expiry dates this should be "public information" or?
Since so far eur/usd action is like gluuuue. ;-)
You are welcome.

Everyday there are some options expiring. EUR/USD is waiting for U.S. March Core CPI. I think that is the reason.
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Old Apr 20, 2005, 2:39pm   #5
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Hayek is right - the interbank fx options market is OTC, so don't quite understand why you think expiry dates should be public information. Expiry dates can be anything the customer wants, and the bank taking the other side of the trade doesn't have to disclose this information to the market.

And I further agree with Hayek that it's impossible to use this information in anything other than a purely anecdotal way. That said, it's always worth being aware of the main expiry TIMES (as opposed to dates) which are pretty standard.

Tokyo Cut is 10:00 London time

NY Cut is 15:00 London time (apart from in that week or so when we switch to BST and the yanks haven't done so yet).

The market often whips about a bit around this time, in the same way that it does around interbank fixing times (for pretty similar reasons). But actually predicting exactly what is going to happen is a lot trickier. Just be aware that this time of day can be choppy.

GJ
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Old Apr 20, 2005, 3:56pm   #6
 
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S.R.G. started this thread GammaJammer,

Well I have never use to pay much of attention when trading, since I want to focus on facts not what if's. But today I was re-drawing my trading plan (please make a search and comment) and was keeping an eye on the news, thus starting to think "creative" (or not) thoughts.

You are an encyklopedia of information... as noted before.

Cheers,
S.R.G.
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Old Apr 20, 2005, 7:05pm   #7
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Quote:
Originally Posted by GammaJammer
Hayek is right - the interbank fx options market is OTC, so don't quite understand why you think expiry dates should be public information. Expiry dates can be anything the customer wants, and the bank taking the other side of the trade doesn't have to disclose this information to the market.

And I further agree with Hayek that it's impossible to use this information in anything other than a purely anecdotal way. That said, it's always worth being aware of the main expiry TIMES (as opposed to dates) which are pretty standard.

Tokyo Cut is 10:00 London time

NY Cut is 15:00 London time (apart from in that week or so when we switch to BST and the yanks haven't done so yet).

The market often whips about a bit around this time, in the same way that it does around interbank fixing times (for pretty similar reasons). But actually predicting exactly what is going to happen is a lot trickier. Just be aware that this time of day can be choppy.

GJ

I know very little about options so this is useful information But you mentioned a Tokyo and US cut time, is there a London time?
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Old Apr 20, 2005, 8:40pm   #8
 
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S.R.G. started this thread
Quote:
Originally Posted by dageshi
I know very little about options so this is useful information But you mentioned a Tokyo and US cut time, is there a London time?
Dageshi,

I am obviously no expert either but CUT means when option stops trading (expiry time) and the hours menioned are GMT +1 (London summer time) else GMT (London winter time).

Regards,

S.R.G.
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Old Apr 21, 2005, 9:06am   #9
Joined Mar 2005
This is interesting topic.

I was looking at the saxo platform and what I notice is that the shortest time
option one can trade is 7 days, which is strictly enforced by the sax platform
itself. This poses some interesting questions:

1) If I happen to, say, write a call 7 days before the option expires and 1 day
later (when one can no longer trade the option now with 6 days left before
expiration) something causes the market to move against me big time, I am
stuck!
I haven't actually traded any forex option on Saxo so I can't really say for sure
that if I can no longer buy back my call to close off the trade and take the loss
or not.

2) If there is this 6 days freeze period, then for sure a lot of manipulation of the
option pricing itself (not necesarily the underlying spot rate) could be done by
the market maker & insiders to turn the tide against my position.

Are my concerns above valid or am I being paranoid here ?

Thanks
SD
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Old Apr 21, 2005, 11:17am   #10
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Options in FX

Well, first of all options in the FX market are entirely different from equities. The cash market being extremely liquid, the options in most cases can be hedged almost perfectly. For instance, if an option has a barrier (as a simple example, the one-touch bet - payout if level say 1.95 in cable is touched at any point duting the life of the option) and spot is a pips away from the barrier with 10 mins left to expiry, you can imagine there is a significant amount at stake for the players. Apart from talks of "defending the barrier etc" to perfectly hedge this one has to take positions several times (sometimes a 100 times) of the notional of the bet, and FX is perhaps the only market where people can be confident of getting such liquidity. If the same option had a US share as underlying, the supply would simply not permit this level of hedging, and regulations are an issue as well.

The other difference is that while in indices like S&P, if you want to hedge a portfolio, its much easier to go the exchange and buy futures or options on the S&P instead of dynamically buying the shares underlying the index (500 in this case). In FX though most transactions, say 96%, occur through the interbank market. This means exceptional flexibility in choosing the date, cut, size, payoff profile, etc. At the end of the day a sizeable deal is most likely going to be like a yard placed with one investment bank, and that bank in turn hedges itself with other banks in the market. Thus most banks know the presence of massive options in the market, information that is privileged. As private traders we can hardly hope to hear about the details of such options.

Finally how would such options affect the market? The two most visible effects in my opinion are:

(1) When there is a massive barrier in the market that is being protected, in effect making it a high importance S/R level until the option expires. Note that just like S/R, the objective observer just stands aside and see who's winning instead of taking sides :-) and if the barrier is indeed breached, usu there is a huge stop loss order in the market to hedge it.

(2) If there is a sizeable option in the market expiring today, spot is close to the strike, and the market is long this option. Now in this case the market is long Gamma and the traders take profit every time spot moves 10 pips or so from the strike, they take profit (age-old habits of taking profits early maybe!) and the net effect is spot stays glued to it until the expiry time, usu NYK cut.

Hope that helps.
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