Options in theory give you unlimited profit potential and limited risk. Sounds good? In theory it does, but keep in mind that 90% of options that are bought expire worthless, so thats a 90% chance of losing your money - if you dont know what you are doing. Getting the Odds on Your Side You can however increase your odds of success with currency options by knowing which options to buy and sell and by knowing how foreign exchange markets work. Four Simple Tips to Increase Your Odds of Success Lets assume you want to buy an option and the price of the British Pound is at 1.60, you are expecting the British Pound to go to 1.90. What option do you buy? 1. Potential Rewards are not what they seem The first points to consider when buying an option is how much time value you want and what strike price you wish to buy. There are two points to consider . Time to expiry . How far out of of the money the strike price is 2. Get time on your side Keep in mind your option does not just need to go your way from when you bought it; it needs to trade in the money by expiry. 3. Buy realistic strike prices If you want to make money in options trading, buy strikes that are in the money or close to the money, with plenty of time to expiry. 4. How to buy options in longer term trends If you are trading currencies and trading the longer-term trend, position yourself into the trend in the following manner. Identify the long-term trend via trend lines. Wait for a dip in the market to position yourself in the trend. Watch for dips to nearby support and then look for confirmation with stochastic crossovers, or other momentum tools to enter the option. Another way of buying options in the long-term trend is to look for moves to the middle of a Bollinger band to time entry. This is a great tool in strongly trending markets. The above will work well in strongly trending markets and if you buy in the money options or realistic strike prices with plenty of time on your side, you will increase your odds of success dramatically. The above is a simple strategy and one that can help you make big profits from currency trading buying options. What about Strategies that are more Complicated? You can do a whole number of options strategies, but our view is why make it complicated? Many traders think the more complicated the strategy the better the chances of success but this is not true in currency options. There is no correlation between how complicated a strategy is and its chances of success. |
