Help On A CAD/USD Trading Strategy & Picking a Broker

D

DPatty16

Hi All,

I ultimately want to "bet" on the thesis that the Canadian dollar will decline in value relative to the US dollar. I would like to do this with options so that it's a bit of money up-front, but at least I know that the "worst case scenario" is I just lose all that money (the option premium).

Where I need the forum's help is in how to craft the trade such that I ideally deal only in Canadian dollars, and ideally when the position is in-the-money, rather then having to deliver a large amount of money to exercise the option I can just purchase the correct option to "lock-in" the profit and just receive that profit in CAD dollars.

My ask has 2x components:

1) Fully Understanding the Steps in the Trade
Let's assume that the current spot FX rate is C$1.35 = US$1.00 and that in 1 year's time it will be C$1.50 = US$1.00. If the previous thesis does play out, how would one correctly execute an FX option trade with a C$1.40 = US$1.00 strike price?

2) Selecting a Broker To Execute the Above Trade (the Features I'm Looking For)
What is a good broker to use for the above trade? To me the features that would be ideal would be:
A) It's Canada or USA-based.
B) It deals with CAD/USD options
C) If your option is in-the-money, but you think the options price isn't reflecting what the position is really worth, you have the ability to EXERCISE the option by delivering the underlying
D) They are setup to let you borrow money for literally only days, in order to close out in-the-money positions on their platform (rather then having to go to a bank, borrow the money, deposit it on their site, exercise the option, then withdraw it from the site to pay off the bank loan).

Thanks for all your help!
 
We can facilitate your trade via CME options on CAD/USD for speculative purposes. However, we do not finance any trading( ie, you cant borrow) and we do not deal with deliveries. I think you should stick to simple speculation, but that is just my perspective.
 
I hear you, but I want the ability to be able to EXERCISE potentially, because otherwise I have no recourse should the options not be priced where they "ought to be" say 1 week from expiry... where there's essentially no time value left in the option and the in-the-money proceeds are the difference between spot & the exercise price, multiplied by the size of the contract. What recourse do I have in such a scenario where I can calculate those proceeds to be say $10k and yet if I sell my options I'm getting only $9k?

If a trading platform DOESN'T give one the flexibility to actually exercise their option, then who is it that ends up actually holding all these in-the-money options at the end as maturity approaches? Is it the brokerage house themselves? Like is it the case the brokerage says it "doesn't deal with delivery", but in practice it means it doesn't deal with that for its customers, yet actually goes through such a process themselves for their own account?

In which case, my concern is that they're cutting into my profits by charging me a fee for them going through the leg work required to exercise an in-the-money position. I would rather do that leg work myself and collect the full profits.
 
TMX offers USD/CAD options quoted in CAD. https://www.m-x.ca/produits_options_devises_en.php

They are cash settled so you can't exercice them. At expiry ITM options will receive a payment based on the difference between strike and spot price. They don't seem liquid, so you may have trouble getting out of a position early. They don't offer LEAPs, so you can't use them for long term play, but you can always roll them.

For your example, you would buy a DEC call at strike 140 quoted at 1.92. That's 192$ per contract. If it reaches 1.50 in december, you'll receive 1000$ per contract or 808$ profit before comissions.
 
Really appreciate the response Tibster... apologies for my ignorance but I have a few questions comments:

1) Cash settled sounds ideal... if they are paid out on a "formula" of (Strike - Spot) x (Contract Size) then I'm ok without being able to exercise as my entire rationale for wanting the ability to do so was in the event the options are trading at "not a fair price given where the strike and spot is". So if it's paid out purely on a formula, I'm ok with that.

2) If they're not liquid, are you sort of saying that if I bought those I should expect to hold them until the maturity date and get paid (only if in-the-money then) by the formula? I'd be ok with having to place a bet where I have to hold until the end of maturity.

3) I'm a bit confused on the link you sent. Where is it that I can actually see what these options are trading at (ie. your example of saying there's a December 2017 call at a C$1.40 = US$1.00 strike price that's going for $192 for 100 "units")? Are there associated "tickers" with these contracts so I can look them up and see what they're going for?

4) When you say before commissions, are these commissions paid to the TMX? Like would I be buying these through some online broker, or is it (ideally) done straight with the TMX? Where can I see their commissions?

5) If I have the money ready to go and want to buy these options, how exactly do I get my money into a "TMX brokerage account" to submit the order?
 
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