Forex Options Strategy
You must have heard about George Soros; the man who made a cool $1 Billion profit in just a few days with a single currency bet. In the early 1990s, he speculated on the price of British pound being too overvalued.
He decided to purchase $10 Billion of puts and calls options by using all their funds assets as collateral. George Soros was willing to gamble everything on a single bet.
He was convinced that the Bank of England cannot sustain the overpriced British pound. In a short time, other speculators also joined action. There was a huge selling pressure on British pound. In a matter of just 24 hours, Bank of England had to take British pound out of the European Monetary System and let it float freely.
The price of British pound plummeted. George Soros gamble had worked. The next day, his picture was in almost all the major newspaper with the caption: The Man who broke the Bank of England.
Currency markets are huge. Everyday roughly $3 trillion gets transacted in the forex markets. There are many methods, the traders can use for profiting from the volatility in the currency markets.
Spot, futures and options are three contracts that are traded on centralized exchanges and available to you as a retail forex trader. Swaps and Forwards are two more contracts traded in forex markets for hedging by large institutions like big banks, multinational corporations and off course hedge funds.
What are forex options? Options are derivative instruments that allow you to buy or sell an underlying asset at a price known as exercise price before or on a certain date called strike date. There is no obligation on you to actually buy/sell the currency like that in futures.
In case of a forex options the underlying asset is the currency. Now, forex options give you the right to purchase/sell a certain amount of a particular currency on payment of a premium.
When will you profit from purchasing a forex options? If the market price of the currency is above/below your strike price, you can buy/sell that currency by exercising your option of buying/selling the currency at the strike price and make a decent profit.
In case, the market price is not above/below the strike price of your forex options contract, you can simply let the options contract expire. You only lose the premium that you had paid for purchasing the options.
There is a very good Non Directional Forex Options Trading Strategy that does not depend on the direction of the market. In other words you dont need to predict whether the currency price is going to go up or down and make your profit regardless.
This is a risk free method but it only guarantees 30-50% ROI. If you are satisfied with this much sure shot return you can try this method.
