Options for the Forex

[throw]

I seem to be consistenly getting stopped out of my positions. I have heard there is a way using options to insure my positions better more or less boxing my position so to speak. Can anyone steer me in the right direction...

[_Ayman_]

Maybe you are using very tight stops...

[throw]

usually 2%.....

[_Ayman_]

How many pips sl you use?

[Coder]

Retail forex options are expensive. You are usually paying around +100 pips for the premium, then another 10 pips if the options are exercised.
Also the options will expire at some time in the future.

Saxobank: 1.2050 EURUSD Call 1 Lot Expiry 14th October $1030.00
CFOS/FX : 1.2050 EURUSD Call 1 Lot Expiry 14th October $1070.00

An alternate strategy is to use a hedge position instead of using options. Hedges cost only the same spread again, and they expire when you close the position out. Also you can define you own risk. This is the number of pips between the buy and sell positions that form the hedge.

I have an account with fx solutions that enables you to trade in both direction simultaniously. I use this hedge method instead of using stops.

The drawbacks are that you are paying twice the spread, the interest can add up over the weeks and you have to be very patient. Also until you close out one of the positions, you are not making any money.

The benifits are that I no longer take losses due to being stopped out. The most I loose is the spread + the difference in between the buy and sell. Usually around 20pips.

You still have to use good technical analysis techniques to know when to close a winning position. When a position is closed out, you place another limit entry hedge 20pips away just in case you get it wrong. Also, when you know the market direction, place additional trades in that direction.

This works with some currencies better than others. For example, AUDUSD has been in a range for almost 1 year.

There are a lot of people against using this type of trading technique. All that I can say is that I'll never go back to using stops again. You can make up your own mind.

There are 2 traders on the _o_a_n_d_a forums that use a similar technique. They are Sympatico & Pips-mania.

Have fun,

Coder

[Mburdge]

Hedging does work quite well with some currencies.

Eur/Usd and Usd/Chf have almost 100% inverse correlation.

You can get data on correlation from www.mataf.net

[PittsburghFX]

Originally Posted by throw

I seem to be consistenly getting stopped out of my positions. I have heard there is a way using options to insure my positions better more or less boxing my position so to speak. Can anyone steer me in the right direction...

What you want to do is buy a futures option contract to hedge your spot position. Liquidity is your only issue there, but you have the legal right to exercise them, with most FX options you cannot exercise. If you can find some FX options that are comparable prices to the futures market and are exercisble than jump on it. The key is that your not going to buy and option for a day trade or even a week. You swing trade with options holding your position for 3 months. The options cost around 2k or 200 pips, big deal, in 3 months or more you could gain 1200 pips or more and the max your risking is 200 pips per 100k position.

[birdjaguar]

Originally Posted by throw

I seem to be consistenly getting stopped out of my positions. I have heard there is a way using options to insure my positions better more or less boxing my position so to speak. Can anyone steer me in the right direction...

Put your entry where you normally put your stop if you usually enter in the right direction. Option buying is expensive and the deck is stacked against you. Stops are cheaper than options. Use a mini account with only two contracts. Rethinking your strategy makes more sense than buying options. The trouble is likely in your analysis and not in the instrument. Since you are not winning anyway, why don't you disclose what you are doing, then we can help you.