How to trade Currency Options?

CME options are your most liquid and fairly prices FX options. You're fooling yourself if you think you can consistently get better prices on other venues.
 
Unless, as Martinghoul noted, you have access to the *real* FX options marketplace, the interbank OTC market. But for you and me there's the CME.
 
I will agree that CME Currency Options are tightly controlled and manipulated by the market makers. The level II data is not complete, you often see quantity 10 sizes listed with the prices rotating by algorithm. This is especially obvious when there is no trade volume at a particular strike price.

I'm not sure how the system can not be gamed when CME contracts 2 - 3 market makers to provide liquidity and quote each strike.

Quote from Martinghoul:

Well, it's not like we're talking about anything particularly esoteric here... Nothing is preventing me from asking 5 different brokers for a price on the same trade and putting a few counterparties in comp. Moreover, nothing prevents me from novating an existing trade to a different counterparty, if I am so inclined.

The one thing that I think we also need to consider is where the CME data actually comes from. The mkt-makers that are providing the price data are the very same people that are capable of manipulation. And it's not like collusion and other shenanigans are unheard of in the vol mkt.

At any rate, you're correct, it's all up to your individual preference in the tradeoff between risk and liquidity.
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Another question about CME FX Options.

Are they American? So can they be excersized early and what do you get if excersized? The futures contract? For which month?

Thanks.
 
Quote from Wolfgang1756:

Another question about CME FX Options.

Are they American? So can they be excersized early and what do you get if excersized? The futures contract? For which month?

Thanks.
More...
While they are technically American, why does it matter to you?

Each option contract can be exercised into a single futures contract. Which one depends on the particular options that you own. The calendar is somewhat similar to that used for Eurodollars, i.e. there are monthly expiries for near contracts and quarterly for further ones.
 
Thanks for the info. I don't like American options because of the nasty surprise when they unexpectidely get excersized! I have written many a (naked) equity call only for it to be excersized early to my complete surpise and then I find out I pick up the tab for the dividend...

At least with no dividends I guess the chances of them being excersized are slim, right?

Thanks again.

P.S. The implied volatility on FX Options is so low! Its like 10% or so! WTF??? Has it always been historically this low? I mean single stock options have like 30-40% and even the S&P 500 is always like 25% or so, i.e. the VIX!
 
Quote from Wolfgang1756:

Thanks for the info. I don't like American options because of the nasty surprise when they unexpectidely get excersized! I have written many a (naked) equity call only for it to be excersized early to my complete surpise and then I find out I pick up the tab for the dividend...

At least with no dividends I guess the chances of them being excersized are slim, right?

Thanks again.

P.S. The implied volatility on FX Options is so low! Its like 10% or so! WTF??? Has it always been historically this low? I mean single stock options have like 30-40% and even the S&P 500 is always like 25% or so, i.e. the VIX!
More...
Slim to none, I'd say...

As to the vol, how much do you think major crosses move on an average day?
 
Quote from Wolfgang1756:

Thanks for the info. I don't like American options because of the nasty surprise when they unexpectidely get excersized! I have written many a (naked) equity call only for it to be excersized early to my complete surpise and then I find out I pick up the tab for the dividend...

At least with no dividends I guess the chances of them being excersized are slim, right?

Thanks again.

P.S. The implied volatility on FX Options is so low! Its like 10% or so! WTF??? Has it always been historically this low? I mean single stock options have like 30-40% and even the S&P 500 is always like 25% or so, i.e. the VIX!
More...

Hi,

My 2 cents.

You would have some thing like a dividend on currency options, that 's foreign interest rate.

CME provide european and american style ones. Monthly options are based on quaterly futures. That means october november and december options are based on december future.

Implied volty is very low on currencies like euro/usd. But the vol of vol is very high.
 
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