How to properly Hedge exotic options?

Firstly I am newbie in trading exotics.. so please feel to help...

Assuming I were to place a one touch bet.. where the Eur/USD needs to trade above 1.1870 within 7 days expiring Nov 25. Now the lets assume the reward to risk is .80 : 1... so for every dollar I lose I make 80 cents. Lets assume the full payout is $10,000.

Now how does one hedge this position in case the trade does not work out.. what are the different scenerios?



--Thanks...

 

Options are already hedged in the sense that your dowside risk is limited.

 

I mean is there any way to play the other side of the trade.. and make money assuming the original trade betting the euro will be higher is wrong.. the point would be do mitigate taking the full loss.


--MIKE

 

Buy options in the opposite direction. It's called butterfly.

 

Can u be more specific and give me an example relating to trade i posted?

 

Sounds like you're looking for arbitrage opportunities, which would be buying a no-touch at the same level at a price that guaranteed a profit either way.

Depending on which part of the risk you want to hedge, you can use a pricing model to quantify that risk and then perform other trades to neutralize it. I've been working on this sort of thing for my own trading, so I'll be watching for replies

btw, where are you trading these? FXCM?

 

Keep it simple, write a contract beyond your target: bear put spread, bull call spread.

 

You mean the http://www.refcospot.com/? I am also testing out betonmarkets.com

 

riskarb knows exotic options....check his thread or ask him directly
thread here http://www.elitetrader.com/vb/showthread.php?s=&threadid=52298