Options Vs Spot Forex

Hello,

I'm looking for some advice and guidance from the community regarding options and if I should be considering this as an alternative investment vehicle.

I currently trade spot forex (part-time) and although I'm making small monthly gains consistently my interfering with trades and physchology has been detrimental to my overall account.

My analysis I believe is very good and I am able to call levels out for where prices will reach to and from there I look at areas to enter.

However I am also very risk averse and a lot of the times I strangle my trades by moving the stop loss up to quickly and thus even end up with a small loss or break even trade.

Where I miss an entry I then have the disadvantage of watching the trade go in the intended direction without me which again causes issues as I sometimes then chase the price action.

So I suppose my question is, would using simple call and put options be a suitable approach, as from what I understand in options is, that once I arrive at a price level in mind, I pay a premium for that strike price whether it is a call or a put option and by building this in to my overall maximum risk tolerance, I would know the maximum loss, avoid any whipsaw action and profit if price does indeed trade to my level as expected.

I know I'll need to research this in more depth as I can see time and expiration dates will be an issue too and so any help in directing me to useful resources would be appreciated as well as any other feedback.

Sorry my understanding is very limited at present but this is brand new to me and I have only ever traded Currencies and Indices on the Spot Markets.

Look forward to your comments, positive, negative but hopefully constructive.

Cheers,

Cotters14

 

Options are not for investment. They're for speculation and leverage. If you want to be an investor as opposed to a trader (gambler) you buy and hold good companies.

Forex is not traded on regulated financial markets so it's not suitable for the risk averse. It is gambling.

You can read all you can about Options and Futures but the best way to learn is to trade them with real money. You'll know if you have the edge to continue trading them long term.

 

Thanks for the reply TradeCat.... OK I suppose the wording "investment" may have been technically wrong as I only speculate. I have no interest in holding positions for more than a few weeks with options with the majority of my trading for the past year being largely intra day with an average holding time of 5hrs across the past year.

When I say risk averse I mean it in the sense that I do not ever risk more than 2% of my account and once I am in profit I move stops to BE at the earliest opportunity.

The reason for looking at options is to predict swings on the daily chart where my 2% risk is susceptible to intra day price moves that I can alleviate with a put or a call option.

I'd look to say buy a 1.3400 call option in USDCAD and use a November expiry for example to allow time for the move to take place and close the option before expiry when sufficient profit is hit.

Any good books you recommend personally?

Cheers,

Cotters14

 

You don't need books to buy puts and calls.

 

Just relax, buy a few usd calls on cad, or puts however they sell them, and wait. It's that simple. Try to have some idea beforehand where the market could go. November seems a long way out. How about September, October? Peace, out.

 

Most of that move could occur in one day.

 

If you are a good stock picker, and have a natural gift for it, options will make you a lot of money. And you don't need a book, understanding puts and calls is pretty basic. But be forewarned, you are swimming with sharks and the desire for instant gratification will get you in trouble. Post some of your ideas though, long or short, I'd like to see what you got.

 

Thanks for the reply, I think that's what I need to do as I need to see how the options premium rises and falls with the factor of time.

Take USDCAD as an example it has spent much of the past few months in consolidation and I can see it breaking out. I got stopped at break even a few times last week as price was chopping around and it has ground higher.

I see 1.3220 happening very soon and then if the move continues then 1.3270 / 1.3480 would be the next levels I feel would be taken and it is these types of scenarios I would like to use the options for.

 

Thanks for the reply Vanzandt. I'm 80%+ FX and the remainder Indexes. With the options I'm not looking for instant gratification. For example if I buy USDCAD 1.3400 call today I would use (or plan to use) an expiry a few months out so if the initial move goes in favour it still has time also to continue with the trend as I have defined it.

I'll post some examples.

Cheers

 

OK so looking at USDCAD again buying a 1.3400 call with November expiry the premium is 196CAD.

How do I determine what a 1pip move in the underlying will mean in the option? The option before you buy it says breakeven 1.3576 but if USDCAD hit 1.3400 tomorrow with so much time left on the expiry I'm sure it would have a much higher premium.

This is the basic information I would like a good place to study. The Internet and YouTube is so full of bad material I don't want to read the wrong thing.

Some videos you have to turn off within seconds as clearly the people making them are so obviously not traders.

Thanks