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Currency Options

Before we discuss currency options it is important to discuss first what options are in general. An option is a financial derivative that represents a contact sold by one party to another party. This is known as an options contract which is a contract that offer the buyer the right, but not the obligation to buy or sell a security or other financial asset at an agreed upon price during a specific period or on a certain date. The options contract represents one hundred shares in the underlying stock. 

Currency options are contracts that give the holder the right, but not the obligation to buy currency or to sell currency at a certain exchange rates during a certain time frame. This type of options is considered one of the best ways for individuals or for corporations to hedge against adverse movements in exchange rates. The forex broker dealing with this contract will be paid a premium depending upon the number of contacts bought.

Hedging, as mentioned above, means to make an investment to reduce the risk of adverse price movements in a particular asset. These are often used along with futures contracts in order to avoid the investment risks associated with market fluctuations. These contracts allow you to sell your asset at a set price in the future in order to do this.

In order to trade currency options you must also be aware of some basic terminology. These terms are defined below.

Strike price the agreed upon price of the buyer and the seller of the option

Exercise date this is the date that is specified in the options contract.

Call a call is the period of time between the opening and the closing of some futures markets where the prices are established through an auction process.

Put the buyer of a put option estimates that the underlying asset will drop below the exercise price before the expiration date.

Bid the bid is an offer that is made by the investor, the trader or a dealer to buy a security. The bid specify the price at which the buyer is willing to purchase the security and the quantity that is to be purchased when trading options.

Ask the ask is the price a seller is willing to accept for a security, also known as the offer price. The ask quote typically specifies the amount of the security that is willing to be sold at that price. 

Spread the spread is the difference between the bid and the ask price of a security or asset.

There is a lot more to learn as it relates to currency options and to options trading in general. Continue to learn about the options markets and about currency trading and see if it works for you.

Market Direction: Can you make big money during a very slow uptrending market? With candlestick analysis the answer is yes, a definite yes! Not necessarily by buying a stock and holding it, but buying stocks that are breaking out, producing big gains, and then moving on to the next breakout situation. It is very difficult to find stocks that can produce 300% profits. Fortunately, the candlestick signals and patterns make the probabilities of being in a stock that has the potential of a 300% move much greater than any other trading technique.

The advantage created by candlestick patterns is the pinpoint timing of the next strong price move. Recognizable patterns are created by the reoccurring process of investor sentiment. That is why patterns are created. Knowing the results of price patterns greatly improve the probabilities of making big percentage returns. Those returns do not necessarily come from hitting huge moves constantly. Those percentage returns come from hitting a decent price move, 10% to 20%, then moving on to the next one. Compound a 10% return on a monthly basis and after one year you have produced a 319% profit. This is much easier to do than trying to hit huge moves with your whole portfolio.

Recent recommendations such as LRCX and CREE were made by the Candlestick Forum based upon expected results. Recognizing a sideways channel allows an investor to be prepared for the optimal time to be buying a potential breakout. As can be seen in the LRCX chart, a morning star signal in the oversold condition created the possibility of a move to the top of a trend channel followed by a potential breakout.



The same scenario occurred in the CREE chart. A trend channel with a candlestick buy signal at the 50 day moving average with the potential of a breakout through the top of the trend channel. Will these trades produce a 100% return, let alone a 300% return? Probably not, but they do have the capabilities of producing a 10% to 20% return. Upon witnessing the first candlestick sell signals would instigate closing a quick profit position and moving on to the next 10% to 20% return potential.



Compounding has a very strong force to make very large returns. Due to the high probabilities created by candlestick signals, big annual returns can be performed without a high degree of risk. Moving from one position to the next, after taking quick profits created from a pattern breakout, provides the opportunity to make huge profits even though the market trend may be relatively sluggish. The 300% returns can be consistently produced with option trading strategies. A relatively indecisive trading range prior to a breakout makes option prices very reasonable. The previous sideways motion of a price will usually diminish the interest of option buyers. Recognizing immediately when a breakout is occurring provides a very good entry opportunity for making inordinately large profits.

Applying the correct strategies with correct price moves is a much more effective way to consistently produce profits than what  most investors attempt to do. Learning how to establish the correct trading strategy allows an investor to greatly minimize risk while at the same time creating many high profit opportunities.

Members' Chat Session tonight at 8 pm ET.

Good investing,

The Candlestick Forum Team

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