trading the XDE.. the Euro...

C

cdcaveman

is anyone trading options on Currency?? i wanna dip my feet in and get wet.. but i have no experience.. and as i'm sure you guys all know.. i'd like to skip the heavy costs of paying for them with alot of losses to find out... haha

Anyone .. Anyone?
 
I am. But only for educational purposes. This market is (or so I've heard) notoriously efficient but I would not have any edge in any other market anyway. The comissions seem to be low enough to allow me to test concepts like delta hedging for example without risking a big account or spending a big % of it on fees.

However they are traded OTC so it's not easy (for me) to get hold of hitorical data, or OI - orderbook data etc. But there are currency options available on exchanges eg see ticker EUU (eur/usd) on ISE. I have personally found that they helped me to get some practical elementary knowledge on concepts like delta hedging, stoch and local vol, vol smile, sticky delta etc. You can also fairly easily find free hist data for the underlying in relatively high frequency ( 5min) and construct more accurate hist. vol/skewness models etc.

There is also a huge amount of literature/info from academia/IBs/HFs and other sources freely available on fx

Of course I haven't made any money. I guess the risk premia are narrower but on the other hand you can get a lot of leverage trading fx options.

Sorry if that wasn't as helpful. Hopefully more experienced traders will respond (and correct me too)
 
I trade them on Globex. Spreads might seem large but you often get fills at midpoint. Same for all globex products.

If you're just looking to dip your feet I'd recommend paper trading. It's senseless to start throwing money at the market without a good, sound plan first.
 
i've only made two trades on the XDE and i've tried trading the Euro to no avail... i'm not good at all at it... i've read alot about it.. i've read books and books on Technical analysis.. i've tried a multitude of things to no avail.. The main thing i hated about trading currency is the whole stops thing.. you know the game is all about how many buy and sell stops one can blow through.. i thought of possible trading without stops and using options as a hedge rather then constantly getting stopped out all the time.. I thought the XDE was the big one no?
 
Globex has higher volume than XDE. Plus it's open longer. Not sure what you mean by using options as a hedge rather than getting stopped. This would essentially require a delta neutral hedge, and thus you'd be trading vega, gamma, theta etc. instead. Is that what you mean?
 
well in a way i was talking more simply about a married put strategy or the reverse instead of using stops at all.. but yea i would probably not exactly delta hedge but more something closer to a married put or if i was short the opposite.. seems to me you easily continuesly delta hedge with currency options because the market is open all the time.. and you can use buy and sell stops to gamma/delta hedge..
 
Quote from cdcaveman:

well in a way i was talking more simply about a married put strategy or the reverse instead of using stops at all.. but yea i would probably not exactly delta hedge but more something closer to a married put or if i was short the opposite.. seems to me you easily continuesly delta hedge with currency options because the market is open all the time.. and you can use buy and sell stops to gamma/delta hedge..
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A married put just reduces your downside deltas. You migth as well trade smaller position size in forex and you'd get the same end result, with less transaction costs / slippage / etc.

And yes delta hedging in forex is pretty simple...but IV / realized relationships in forex arent that great, so theres little to no edge. In my delta hedging adventures I've done best w/ certain stocks that have consistently high IV / realized relationship and where realized never exceed 30-day IV forward, and ofc no upcoming announcements on the horizon...its possible to scan for this.
 
Quote from TskTsk:

A married put just reduces your downside deltas. You migth as well trade smaller position size in forex and you'd get the same end result, with less transaction costs / slippage / etc.

And yes delta hedging in forex is pretty simple...but IV / realized relationships in forex arent that great, so theres little to no edge. In my delta hedging adventures I've done best w/ certain stocks that have consistently high IV / realized relationship and where realized never exceed 30-day IV forward, and ofc no upcoming announcements on the horizon...its possible to scan for this.
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what you say makes competely sense to me.. delta hedging for me is tough because my account size is very small.. so i have to filter a scan for stocks that i can actually collect good premium on and that as well i can afford the deltas.. and in the same respect i don't wanna tie up to much of my capital in one trading series.. i've thought about selling a few extra calls on long stock with the powder on the side necessary to buy more stock if my gamma exposure goes up.. but not on near expiration options... but not super far back month either.. i'm still modeling that senerio for best risk to reward.. theres less jump risk with currency is probably why theres not as much money to be made in the delta hedge.. i guarantee there's a high amount of money exploiting the currency option area..

Do you use buy stops when delta hedging short calls? or do you even delta hedge like that? are you only buying options and delta hedging?
 
You could also consider options on CurrencyShares.

CurrencyShares Australian Dollar Trust FXA http://finance.yahoo.com/q?s=FXA
CurrencyShares British Pound Sterling Trust FXB http://finance.yahoo.com/q?s=FXB
CurrencyShares Canadian Dollar Trust FXC http://finance.yahoo.com/q?s=FXC
CurrencyShares Euro Trust FXE http://finance.yahoo.com/q?s=FXE
CurrencyShares Japanese Yen Trust FXY http://finance.yahoo.com/q?s=FXY
CurrencyShares Swedish Krona Trust FXS http://finance.yahoo.com/q?s=FXS
CurrencyShares Swiss Franc Trust FXF http://finance.yahoo.com/q?s=FXF



:)
 
Quote from diaoptions:

You could also consider options on CurrencyShares.

CurrencyShares Australian Dollar Trust FXA http://finance.yahoo.com/q?s=FXA
CurrencyShares British Pound Sterling Trust FXB http://finance.yahoo.com/q?s=FXB
CurrencyShares Canadian Dollar Trust FXC http://finance.yahoo.com/q?s=FXC
CurrencyShares Euro Trust FXE http://finance.yahoo.com/q?s=FXE
CurrencyShares Japanese Yen Trust FXY http://finance.yahoo.com/q?s=FXY
CurrencyShares Swedish Krona Trust FXS http://finance.yahoo.com/q?s=FXS
CurrencyShares Swiss Franc Trust FXF http://finance.yahoo.com/q?s=FXF



:)
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I've never thought about that..i wonder how all the options are priced between the different instriments in the same underlying.. could you assume that they are all the same? i'd have a hard time believin that.. supply and demand is different for every instrument even if it is the same underlying
 
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