Currency Box Options

A questions if I may atticus.

I was wondering what you think about using a relatively short-term hit box as a type of stop loss? I'm thinking it will be in the area of 60 - 150 pips, depending on pair being traded and generally for 3-4 days. An OK idea?

So the trade would be long spot about 1/2 as much as the hit below market would pay. I guess this is a long synthetic straddle of sorts. What I'm trying to get away from is using outright stop orders which often shake me out of great longer-term trades due to the volatility.

Thanks in advance,
MK

PS Please explain in laments terms if possible :D
 
Quote from MidKnight:

A questions if I may atticus.

I was wondering what you think about using a relatively short-term hit box as a type of stop loss? I'm thinking it will be in the area of 60 - 150 pips, depending on pair being traded and generally for 3-4 days. An OK idea?

So the trade would be long spot about 1/2 as much as the hit below market would pay. I guess this is a long synthetic straddle of sorts. What I'm trying to get away from is using outright stop orders which often shake me out of great longer-term trades due to the volatility.

Thanks in advance,
MK

PS Please explain in laments terms if possible :D
More...

Absolutely. They excel as hedging instruments. Excellent strategy to solve for 1:1, and you maintain continuity in longer-term +swap positions.
 
I just got back from walking the dog on the beach. Walking on the beach is great for passively thinking. Thoughts just mull away as the white noise of the waves rolling in seems distracting, but somehow pieces of puzzles come together. Taking a shower is similar. 2 of the best places for mulling ideas over.

So on this walk I was thinking about these products more and about my previous post. It sorta hit me that maybe my idea was backwards. What I mean is, maybe instead of the spot being used as the main play, maybe the spot should be used for the protection while the box is used as the main play.

Here are my reasons, I'm sure there are more:
1) The spot is more flexible allowing to add bits or take bits off at any time throughout the duration of the play. This is the main plus that I could see
2) spot responds instantaneously as price moves (duh)

I can see why you seem to be using spot as the hedge now (I think). I need to go for a few more walks on the beach and take a few more showers to nut this out more.

To make the spot hedge effective I guess one needs a more active approach to managing it? That is, taking some off here, and adding a little bit more there, thus making some pocket change on the hedge as the trade progresses. I've always liked this in theory, but have thought that maybe doing this just another way to lose by getting the adjustments wrong - LOL.

MK
 
Quote from atticus:

Absolutely. They excel as hedging instruments. Excellent strategy to solve for 1:1, and you maintain continuity in longer-term +swap positions.
More...

Thanks for the reply, yes it would be a good approach for intermediate term trades or longer.
 
Just had a shower - LOL

That yen box I posted was a perfect example of how using a spot hedge right from the start would have greatly increased the profits on this trade (if it works out). R/R on the trade would have changed from something 1.5:1 to something like nearly 4 or 5:1. Depending on how the much was allocated to the spot hedge. I was thinking the spot hedge would be something like 1/2 of box risk.

More to think about, more to read, having a blast.

My best,
MK
 
Hi, nice thread, hope i can contribute in the future. I've been using oanda to hedge positions for a fair time now. I consider it insurance but it all depends on how i'm using them at the time. That is why I liked them to begin with, so dynamic and they give the ability to protect as well as bump up your exposure. Covered calls (selling/buying into misses) is how what i'm doing recently I also use hits to straddle volitility (news), the payouts can be quite good short term. Long term is good as well because you get time to work with it... fun for the whole familiy if you ask me.

I'll take one guess at who atticus is ;) ..

Ciao
 
Yes, a very good thread.
Jack, in this low volatility market(why is the vol so low???), that must be a very good play for you
 
MK -- realize that edge is proportional to vega-sensitivity, and therefore, duration. You'll find that the longer the duration, the better the secondary market and closer to model fairval.

JJ -- you won't need three guesses. Haven't been to O's forum in a few months.
 
Quote from atticus:
MK -- realize that edge is proportional to vega-sensitivity, and therefore, duration.
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I need brush up on this stuff again atticus. I'll pull out Natenberg and hopefully I can solve this riddle over the weekend.

Quote from atticus:

You'll find that the longer the duration, the better the secondary market and closer to model fairval.
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This makes sense to me.

Kind regards,
MK
 
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