Currency Box Options

Discussion in 'Forex' started by ZoneTrooper, May 21, 2007.

  1. KS96


    3 sigmas sound highly probable
    to me in short timeframes in FX :p
    #11     May 22, 2007
  2. Do a google search on american barrier, touch, no touch, binary options; and read the many white paper pdfs.

    Wystup's book is very good:

    Short-dated exotics are a defined-risk play on price distribution. Long-term exotics are a bet on volatility. No surprise there. Gamma/leverage are synonymous in a close proximity touch option. A recent example. I bought a 72-hour, 40 pip otm upside NT on AUDUSD with Oanda [2 accounts]. Payout was $40,000//$82,000 on the miss. AUDUSD dropped 25 pips without touching the barrier strike. I earned 5x on realized vol with the NT than would be had selling 2.5mm spot [41k haircut at 50:1].

    Most positions modeled are <15 delta. It's not comfortable to most to trade a risk:reward >1:1.
    #12     May 22, 2007
  3. I'll add that the implied vols on the majors is something less than 7% annual vol. Take the EURJPY at 163.50. Imagine trading an equity option position on a stock trading at 163 with 7% vol.
    #13     May 22, 2007
  4. I just priced and executed a $10,000/$12,535 NT on USDJPY with Oanda. Superderivatives returned a fairval on the position of $10,070//$12,535.
    #14     May 22, 2007
  5. Thanks for the reply atticus. I understood part of your reply and will look into it more before asking anymore questions on it.

    The yen trade, was that an upside NT? Also, your notation is that risk / reward?

    Best regards,
    #15     May 22, 2007
  6. Right, an 80 pip otm NT expiring on Thursday at 10pm PST. Correct, R/R.
    #16     May 22, 2007
  7. Excellent, thx - hope it works out well for you.

    At the risk of asking an obvious question, would it be fair to assume that the best R/R NT plays are going to be against the trend?

    My first thoughts are the NT barriers will be easier to predict then the one touch ones....

    With kind regards,
    #17     May 22, 2007
  8. There can be a small vol-premium as reflected in the risk-reversal quote [equidistant call and put strike vols]. This would result in a slight premium in payout. This was not the case on the jpy trade.
    #18     May 22, 2007
  9. I guess it makes sense that they wouldn't give me a good payout for a 3 SD event, but I'd rather trade in a market where I can post a bid and have to deal with exchange-set expirations and strikes than deal with getting raped... it seems to me like the cost of customizable options is too high, but again, I'm an intraday equity trader so I'm not claiming to have any knowledge of the FX options market - it just seems like Oanda gets the better side of these deals than we do, by a LONG shot. Oanda should be willing to bleed a little money to those who want to constantly be short volatility, because even with a 100% spread between the bid and the offer (instead of 6000%, as provided in my example) they'll make a killing over the long term even with the most horrendous volatility forecasts.

    The other reason I don't 'like Oanda's FX Box Options is that in their demo FX Game accounts, they pay you significantly better premiums than they do in live accounts. That may be unimportant for some, and if you don't like their live premiums you shouldn't trade there regardless of their demo practices, but I just find it extremely sketchy that they seduce traders with much more favorably priced options than they actually provide.
    #19     May 22, 2007
  10. The FXGame payout was actually lower than the FXTrade payout, but changed to a premium as I clicked to capture the screen. Oanda models in real-time to realized vols for the trade platform, but doesn't do so on the demo. The demo uses a rolling 24h vol. I have seen many instances where Game payouts were lower than Trade..

    #20     May 22, 2007