currency options- anywhere to learn?

[TAjammy]

I'm swing trading currencies and i feel a call or a put option would be best rather than a hard stop loss. i cant be bothered to explain but it should be obvious.

Anyway, im a newb in options, is there any sources, books etc that i can learn about options on currencies?

 

[zambuck]

Following may be useful.....I have Peter Hoadley's Excel plug in and it is probably the best to use....

http://www.optionsxpress.eu/education_center/?cmpid=gseu21151996b

http://www.hoadley.net/options/options.htm

 

[GammaJammer]

The problem with options trading as far as retail traders are concerned is a twofold one;

1) in those sorts of sizes, spreads are very wide, as it's a very inefficient thing for the banks etc to price and clear.

2) Most retail traders would simply not be equipped to trade options the way that the pros do. Simply buying a call or a put as a 'backstop' to a cash position is at the low end of sophistication. Most wholesale options traders are basically trading implied and actual volatility when they trade options (actually the truth is a fair bit more complex than that but thats a good starting point). So the actual short term moves in spot are the least of their concerns (they will for example usually trade delta neutral, hedging any delta exposure in the spot market and adjusting that hedge as spot moves up and down). So you need to be set up accordingly in order to trade options in anything other than a lottery ticket type way - you would need for example proper risk management software to track your delta, gamma, vega exposure etc, plus the facility to be net short certain strikes (so you could trade spreads for example). If you simply go and buy options you'll pay too high a premium most likely and it'll just be a slow erosion of your account.

 

[TAjammy]

thanks folks, ill shape up with a couple of books on amazon.

To trade currency options, wouldnt you need a beefy account ?

 

[GammaJammer]

I don't know about a beefy account, I just meant that to trade them in a way as to make the most of them you need to do a bit more than just 'buy and hold' these things.

But fwiw I'm not sure that the sort of knowledge I'm talking about is necessarily going to be found somewhere on Amazon. I have seen loads of books on options theory over the years but most of them seem to get too hung up on pricing and the mathematics of the black-scholes formula, rather than practical applications. Someone should write a book aimed at this kind of level (i.e. below institutional / market maker level but aspiring to trade better and more professionally). Hmmmmm

 

[gooseman]

TAjammy-i can see your easoning but as GJ says you have so much to think about. in principle it is a sound idea but the practicalities of managing such a position in institutional, never mind retail size are big and the the basic models you'll come across don't take into account the smile etc. honeslty stick with stops for the moment. good luck tho.

 

[virtuos0]

I think Natenberg's book is as close to you'll get as being the best single book on options, it's not as theoretical as Hull but still has enough to juicy stuff to satisfy the nerd.

I've personally discounted the idea of using options in my trading, I couldn't find a situation where the benefits outweighed the drawbacks. However even if you don't use them I think that learning about them is essential, why have a missing link in your knowledge?

If you are worried about the idea of using hard stop losses I suggest you look into the idea of controlling your risk by scaling out of positions.

 

[Martinghoul]

I am with GJ on this... It's gonna be difficult to do FX options in a retail context.

If you just want to read about options, I'd start with Hull, personally.

 

[TAjammy]

I think Natenberg's book is as close to you'll get as being the best single book on options, it's not as theoretical as Hull but still has enough to juicy stuff to satisfy the nerd.

I've personally discounted the idea of using options in my trading, I couldn't find a situation where the benefits outweighed the drawbacks. However even if you don't use them I think that learning about them is essential, why have a missing link in your knowledge?

If you are worried about the idea of using hard stop losses I suggest you look into the idea of controlling your risk by scaling out of positions.

its not that im worried, but why use a hard stop 200 pips away when you could have a put option 20 pips away which costs 50 pips, and exit at where the stop loss would be-so that your maximum loss is 70 pips?
Im not into option pricing at all, black scholes etc, just want to understand the options jargon.

 

[TAjammy]

I don't know about a beefy account, I just meant that to trade them in a way as to make the most of them you need to do a bit more than just 'buy and hold' these things.

But fwiw I'm not sure that the sort of knowledge I'm talking about is necessarily going to be found somewhere on Amazon. I have seen loads of books on options theory over the years but most of them seem to get too hung up on pricing and the mathematics of the black-scholes formula, rather than practical applications. Someone should write a book aimed at this kind of level (i.e. below institutional / market maker level but aspiring to trade better and more professionally). Hmmmmm

im not looking into buying and holding, etc. im looking into protecting my outright position with an option rather than a hard stop. like if i wanted to go long eurousd i wouldnt buy a call option, i'd go long with a put option X pips away and a position to close the option and the outright long.

 

[Martinghoul]

im not looking into buying and holding, etc. im looking into protecting my outright position with an option rather than a hard stop. like if i wanted to go long eurousd i wouldnt buy a call option, i'd go long with a put option X pips away and a position to close the option and the outright long.

Why do you want to use an option for this? I would think that it is a much more expensive choice than a stop, especially for something like EURUSD, where liquidity is not likely to ever deteriorate.

 

[TAjammy]

Why do you want to use an option for this? I would think that it is a much more expensive choice than a stop, especially for something like EURUSD, where liquidity is not likely to ever deteriorate.

if there is a wide stop, say 300 pips, going long. just using a hars stop my maximum loss is 300 pips. Whereas if i placed a put option 50 pips away from long entry, which costed 50 pips, my maximum loss is 100 pips.(is it, sorry im not so good with the numbers on options yet)and in this example you could say to close the position where you would have placed the 300 pip hard stop, instead of losing 300 pips you only lose 100 pips.(again,tell me if my numbers are wrong)