Why Trade Options?

[tommog]

Hi,

I am a spot forex trader but out of interest i looked into the world of options, and i really couldnt see the advantage for of trading them perhapes someone could explain what im missing out out?

The EUR/USD was trading at 1.2065, and i looked at the price to buy a "one touch" option at 1.2000, in the following day, so basically (from my understanding) if the price moved from 1.2065 to 1.2000 i would make money. The price i was quoted was £97 for the option for a payout of £100! If i trading spot i would have had the profit of a 65 pip move as opposed to a £3 profit on the option. And as regards to risk, my stoploss would not have been 97 pips on trading the spot price so as well as virtually no reward on the option the risk was huge in comparison.

Have i approached options in the wrong way? Are they not meant to be used for day trading ? Do people that trade options only trade huge amounts over long time frames i.e EUR/USD will trade at or through 1.2800 in the next 2 months for a payout of £10,000? I can't see many private investors trading with this much risk?

cheers,
tom

 

[Robertral]

Hi,

I am a spot forex trader but out of interest i looked into the world of options, and i really couldnt see the advantage for of trading them perhapes someone could explain what im missing out out?

The EUR/USD was trading at 1.2065, and i looked at the price to buy a "one touch" option at 1.2000, in the following day, so basically (from my understanding) if the price moved from 1.2065 to 1.2000 i would make money. The price i was quoted was £97 for the option for a payout of £100! If i trading spot i would have had the profit of a 65 pip move as opposed to a £3 profit on the option. And as regards to risk, my stoploss would not have been 97 pips on trading the spot price so as well as virtually no reward on the option the risk was huge in comparison.

Have i approached options in the wrong way? Are they not meant to be used for day trading ? Do people that trade options only trade huge amounts over long time frames i.e EUR/USD will trade at or through 1.2800 in the next 2 months for a payout of £10,000? I can't see many private investors trading with this much risk?

cheers,
tom

I suggest you start looking at vanilla options before moving on to American style Digital options.......
The reason why it was priced at 97 was because 65 pips is not really a big move and hence that is priced into the quote....One touches are good when the barrier is far from the spot, i.e a 1.1000 or a 1.3000 one touch, where the price is much cheaper (less probability of the spot hitting the barrier).........Try looking up american digital or american binary or one touch on google

 

[adrianallen99]

I trade options most of the time these days - mostly 'No Touch' and 'Double No Touch' bets. I hold the trades open from 7 days to 30 days. I tend to look for a payout of around 40%. So for a bet that wins $100 I would pay a premium of $70 +/- a few $'s

I have the most success with AUD/USD where I have win 28 trades out of 30.