As I understand it, most longer term options expire useless (not being exercised). So my thinking is that traders with larger funds will be hedging forex/futures positions by buying puts or calls as a kind of insurance. With this in mind, is there a way for me to see the DOM in the options market? How do I see where all the volume sits? Perhaps this would clue me in to liquid zones which I can avoid (or trade from) in the futures market. I am new to options so my questions will come across in a very simplistic manner (until such time as I learn the correct words and phrases to use) Thank you.
'longer' or shorter doesn't matter. it's not 'a kind of...', it *is* insurance. What you want is Open Interest by strike, which *should*be* available on your platform. But it's going to tell you more about where traders *thought* they desired protection. IV will tell you more about what the market is thinking *right*now*. Not "VIX", but the per-strike IV.
Thank you tommcginnis. I trade fx from the 4hr and above timeframe and manually enter trades directly on the brokers portal. I use tradingview to chart but generally can look at any price chart to base decisions off. Right now I dont even know where to go to access open interest by strike levels. CBOE? What is IV? Thank you.
"As I understand it, most longer term options expire useless (not being exercised). So my thinking is that traders with larger funds will be hedging forex/futures positions by buying puts or calls as a kind of insurance." Yes, buying puts and calls is like in buying insurance. Selling puts and calls is like selling insurance. It is better to be a seller of insurance than a buyer over time. This is because implied volatility is always greater (over time) than actual volatility.
Except that that has not held true for extended periods of time in the last 12-18 months. Map this yourself with a daily candle, and check it before you cheer-lead for selling risk. These be scary times.
I recommend reading an introductory book on options. That way you learn the basics in a structured way and in the correct order. Knowing how to enter orders definitely comes after knowing how they work, and your many questions will be answered with a little reading.
Thanks I will do just that. Just one question though. Most of the explanations are conceptual which is great but I would also like to see real world examples as I am learning. So for instance it would be nice to see the open interest by strike price levels for Gold, or 6e futures...whatever the actual current state of the market is for a particular instrument. Can anyone recommend a resource that will allow me to view the basic level information for free.....delayed data or EOD data? Thanks.
No idea where you'd find free -- but I bet it's out there -- CBOE? https://www.theocc.com/market-data/open-interest/ Google is your friend. I off-load 70 strikes ES maybe 3 times a day -- should still have Friday's EOD available, including volume and open interest. Check back later.
It's pretty consistent in the ES that the OI will be about 10x the volume traded in any given day. Note that these data are for 71 strikes, 2675-3025 inclusive, and that there is a rollover of /ES from Sept.→Dec. in the data. FWIW, I find looking at daily volume and OI *interesting*, but not so much determinative, as these trades were all relevant when they were made, and even a single hour's market action may obsolesce a position, but not quite enough to justify its withdrawal. If you're looking to work OTM, though -- there's another use: targeting the *type* of strike that gets action. Legging into a 2950/2975 will not be too hard, as they're both major strikes that get action early. But try exiting a 2960/2970 as a spread -- it's not going to happen near MIDs. The takeaway: if you might leg out of a credit spread, place your long on an anchor strike. You can buy the short at your leisure, your limit price. And then, with higher volume, you can have a better-but-not-guaranteed chance of selling your long position, on that 'hot spot' strike.
Until I have done further reading, I am going to resist the temptation to ask you what most of that meant. Except this one thing: Daily volume and OI would be useful to you if you were trading on that or higher timeframe wouldn't it? I cannot imagine institutional money fiddling around on an intraday level? Example: If I wanted to long gold and try hold for days/weeks would there be any indication from the daily OI at a specific strike price/zone on where institutional 'protection' is likely to be placed?