Welcome to Forex-TSD!, one of the largest Forex forums worldwide, where you will be able to find the most complete and reliable Forex information imaginable.
From the list below, select the forum that you want to visit and register to post, as many times you want. It’s absolutely free. Click here for registering on Forex-TSD.
Exclusive Forum
The Exclusive Forum is the only paid section. Once you subscribe, you will get free access to real cutting-edge Trading Systems (automated and not), Indicators, Signals, Articles, etc., that will help and guide you, in ways that you could only imagine, with your Forex trading.
Elite Section
Get access to private discussions, specialized support, indicators and trading systems reported every week.
Advanced Elite Section
For professional traders, trading system developers and any other member who may need to use and/or convert, the most cutting-edge exclusive indicators and trading systems for MT4 and MT5.
is implemented by combining one or more option positions and possibly an underlying stock position. Options are financial instruments which give the buyer the right to buy (for a call option) or sell (for a put option) the underlying security at some specific point of time in the future (European Option) or until some specific point of time in the future (American Option) for a price (strike price) which is fixed in advance (when the option is bought). Calls increase in value as the underlying stock increases in value. Likewise puts increase in value as the underlying stock decreases in value. Buying both a call and a put means that if the underlying stock moves up the call increases in value and likewise if the underlying stock moves down the put increases in value. The combined position can increase in value if the stock moves in either direction. (The position loses money if the stock stays at the same price or within a range of the price when the position was established.) This strategy is called a straddle. It is one of many options strategies that investors can employ.
Options strategies can favor movements in the underlying stock that are bullish, bearish or neutral. In the case of neutral strategies, they can be further classified into those that are bullish on volatility and those that are bearish on volatility. The option positions used can be long and/or short positions in calls and/or puts at various strikes.
In finance, a barrier option is a type of financial option where the option to exercise depends on the underlying crossing or reaching a given barrier level. Barrier options were created to provide the insurance value of an option without charging as much premium. For example, if you believe that IBM will go up this year, but are willing to bet that it won't go above $100, then you can buy the barrier and pay less premium than the vanilla option.
Types
Barrier options are path-dependent exotics that are similar in some ways to ordinary options. There are put and call, as well as European and American varieties. But they become activated or, on the contrary, null and void only if the underlier reaches a predetermined level (barrier).
"In" options start their lives worthless and only become active in the event a predetermined knock-in barrier price is breached. "Out" options start their lives active and become null and void in the event a certain knock-out barrier price is breached.
In either case, if the option expires inactive, then there may be a cash rebate paid out. This could be nothing, in which case the option ends up worthless, or it could be some fraction of the premium.
The four main types of barrier options are:
Up-and-out: spot price starts below the barrier level and has to move up for the option to be knocked out.
Down-and-out: spot price starts above the barrier level and has to move down for the option to become null and void.
Up-and-in: spot price starts below the barrier level and has to move up for the option to become activated.
Down-and-in: spot price starts above the barrier level and has to move down for the option to become activated.
For example, a European call option may be written on an underlying with spot price of $100, and a knockout barrier of $120. This option behaves in every way like a vanilla European call, except if the spot price ever moves above $120, the option "knocks out" and the contract is null and void. Note that the option does not reactivate if the spot price falls below $120 again. Once it is out, it's out for good.
In-out parity is the barrier option's answer to put-call parity. If we combine one "in" option and one "out" barrier option with the same strikes and expirations, we get the price of a vanilla option: C = Cin + Cout. A simple arbitrage argument—simultaneously holding the "in" and the "out" option guarantees that one and only one of the two will pay off. The argument only works for European options without rebate.
This is the first strategy from a several I will post.
I hope you've read the tutorial and understand the basis of trading with options
Let's say you're long since 2008-02-27 when everybody (experts) pointed the Euro to 1.60. You've entered the spot at 1.5000 SL 1.4770.
Nine days after you trade is healthy with near 340/400 pips profited.
It's time to exit? Absolutely no because there is no real need to exit.
How we can take advantage from current situation?
With uptrends calls are generally cheaps than puts (and vice versa for downtrends. Our SL is a t 1.5140. We start to research about opportunities with calls or binary. On 2008-03-12 we've found a nice call, cheaper and interesting or better we buy a simple binary touch option for 1.5400 level and we boy the option to secure our current profit.
We where trading a simple lot so our profit is near $4000, we buy the option for another $4000 and depending on premium let's say we pay $800 to $1200.
We miss the opportunity to exit the spot above 1.5700 and we prefer to wait for a rebound. Unfortunately market starts to falls at 2008-03-18 and we lost 200 pips form the potential 600 pips.
On 2008-03-24 we execute our call or if we bought a simple NT the desired level ( 1.5400) where touch. We exit our long spot position too.
Let's do some maths.
Long spot profit 1.5400 - 1.5000 = 400 pips ($4000)
Call or binary premium -$1200
Call or binary payment $4000
Total profit= $6800
If we take a bad decision and 1.5400 where not hit and the market rebounded before let's say we're lucky and we could exit at 1.5800 our result will be:
Long spot profit 1.5800 - 1.5000 = 800 pips ($8000)
I was waiting for market open to post trades with real volatility but seems Oanda server is with troubles. Something like chart server not currently reachable
I was looking with SaxoBank to explain the short cover and hedging and currently there are now good binaries to hedge positions. But we can explain again the long hedging in real time.
Idea: Long at spot today without SL. Buy a Vanilla Call to protect our shorts with expiration at May 30.
This is an adaptation of document made by a Financial Institution.
What is a Foreign Exchange Sold Knock-In Call Option?
A Sold Knock-In Call Option is an income-generating product for sellers who are carrying out transactions using a foreign currency.
What are Sold Knock-In Call Options used for?
A Sold Knock-In Call Option generates income in the form of a one off premium. You earn the premium by selling the option.
Unlike a standard Sold Call Option, the Sold Knock-In Call Option possesses an additional structural feature termed a knock-in level. The option will only
come into existence if the knock-in level is reached during the term of the option.
A Sold Knock-In Call Option is not designed to provide protection against movements in the relevant currency.
What does a Sold Knock-In Call Option do?
A Sold Knock-In Call Option is an agreement between the seller (you) and the buyer of the Sold Knock-In Call Option. You receive a premium
for selling a Sold Knock-In Call Option to the buyer.
The option comes into existence only if the predetermined knock-in level is reached before the cut-off time on the expiry date. If this knock-in level is reached, buyer obtains the right, but not the obligation, to buy from you an agreed amount of one currency with another nominated currency at an agreed price (the strike price). This takes place at a specified future date, generally referred to as the expiry date.
If the knock-in level is not reached before the cut-off time, the option does not come into existence and Buyer has no right to exchange currencies.
The two currencies in the Sold Knock-In Call Option are referred to as thecurrency pair.
You may nominate the strike price, knock-in level, the expiry date and the currency pair and amount. They are tailored and fixed from the outset according to your needs. The nominations you make will affect the amount of the premium payable.
What do I receive?
Buyer pays you a premium for your Sold Knock-In Call Option. We calculate the premium we are prepared to pay for each Sold Knock-In Call Option on a transaction by transaction basis.
What important factors affect the premium at any point of time?
To calculate the premium, we take several factors into account:
· the strike price
· the knock-in level
· the expiry date
· current market exchange rates
· volatility of the underlying currency at that time, and
· prevailing interest rates of the countries whose currencies are being
exchanged
Cost of product
You do not pay any fees or charges when you sell a Sold Knock-In Call Option. However, you should be fully aware of, and comfortable with, the potential financial costs to you if the option is exercised.
You should make sure you fully understand the financial implications of the option that you are considering selling.
Advantages/benefits
· A Sold Knock-In Call Option enables you to earn a premium. You know how much premium you will receive when you sell the Sold Knock-In Call Option.
· A Sold Knock-In Call Option is flexible. It can be tailored to meet your particular requirements.
· A Sold Knock-In Call Option can be cancelled before its expiry date, giving you the ability to eliminate your exposure (however, there may be a cost to you in doing so - see Early termination section for further details).
Disadvantages/risks
· If the knock-in level has been reached and the prevailing exchange rate is worse for us than the strike price on the expiry date, the option will normally be exercised by Buyer. You must then deliver your currency to Buyer at the strike price which would be less favourable to you than the current exchange rate.
· If the option is exercised and you do not require the underlying currency and choose to convert it to another currency, you may receive less than you delivered under the option. This loss is unlimited, depending on the exchange rate for the currency pair and the strike price of the option.
· If the option is exercised and you do not have the currency you are required to deliver, you will need to purchase it in order to meet your obligations under the Sold Knock-In Call Option. As the exchange rate at which you can purchase that currency will be less favourable than the strike price of the option, this will result in a loss to you. This loss is potentially unlimited.
· A Sold Knock-In Call Option is not designed to provide protection against a movement in the relevant currency. The benefit of the product is limited to the premium received.
· Early termination may result in costs to you. Those costs may be higher than the premium you received for the Sold Knock-In Call Option.
· There is no cooling off period. Once you have sold the option, you are bound by its terms.
· We generally have performance obligations under all the financial markets products we enter into. Customers depend on us to perform our
obligations. Our ability to do so is linked to our financial wellbeing.
This type of risk is commonly referred to as credit or counterparty risk.
When can knock-in occur?
A Sold Knock-In Call Option will immediately come into existence if the exchange rate for the currency pair trades at or beyond the knock-in level.
This may occur at any time before the cut-off time on the expiry date and on any global inter-bank foreign exchange market.
What happens if the knock-in level is not reached?
If the knock-in level is not reached before the cut-off time, the option does not come into existence.
What happens if the knock-in level is reached?
If the knock-in level is reached before the cut-off time, the option comes into existence. Buyer then has the right to exercise the option on the expiry date.
If Buyer exercises the option, you must exchange currencies at the agreed strike price.
If Buyer does not exercise the option at expiry, it will lapse.
Settlement
Exercise and settlement can only take place if the Sold Knock-In Call Optionhas been knocked-in.
What happens when an option is exercised?
Buyer will inform you whether or not we intend to exercise the option on the expiry date.
If buyer exercises the option settlement will occur on the value date, that is often two business days after the expiry date. On this date, you will be required to deliver your currency to the buyer.
Can I terminate the option before expiry?
You may ask us to terminate the Sold Knock-In Call Option at any time up to the expiry date.
What will be the value of the option on early termination?
Quote will incorporate the same variables (the strike price, knock-in level, currency, amount and expiry date) used when pricing the original option.
These will be adjusted for prevailing market rates over the remaining term of the option.
We will also need to consider the cost of reversing or offsetting your original transaction. When doing this Buyer takes into account the current market rates that apply to any offsetting transactions.
What happens if I accept?
If you accept the quote, we will cancel the option. You should appreciate that you may lose money as a result of early termination.
The examples below are indicative only and use rates and figures we have selected to demonstrate how the product works. In order to assess the merits of any particular option, you would need to use the actual rates and figuresquoted to you at the time. Note that the calculations below include rounding of decimal places.
Scenario
Assume that you are an Australian based importer due to pay 100,000 United States dollars (USD) in three months’ time for goods purchased from overseas.
At that time you will need to purchase USD 100,000 with Australian dollars (AUD). Assume also that the current AUD/USD exchange rate is 0.6450.
If I do nothing, what exchange rate risks do I face?
If you do nothing, the amount of AUD you will need in 3 months’ time for your underlying exposure will depend on the exchange rate at that particular time.
If the AUD/USD exchange rate goes down, you will need more AUD to purchase the USD. Assume in this example that the AUD falls to 0.6200, then you will need: AUD 161,290.32 ( = USD100,000 / 0.6200)
If however the AUD/USD exchange rate goes up, the opposite occurs and you will need less AUD to purchase the USD. If we assume that the AUD/USD exchange rate rises to 0.6900, then you will need: AUD 144,927.54 ( = USD 100,000 / 0.6900)
How will the Sold Knock-In Call Option change this?
Assume that you sell a Sold Knock-In Call option with a strike price of AUD/USD 0.6500 and a knock-in level of 0.6700 for a total premium of USD 3,000.
This premium equates to 3.0% of the face value of the transaction (being USD 100,000). You wish to receive the premium in AUD. To calculate the AUD premium, Buyer converts the USD amount at its current exchange rate. In this case the exchange rate is USD 0.6450, so the premium paid to you is AUD 4,651.16.
...no knock-in occurs
If during the term of the option, the knock in level (0.6700) is not reached, the option does not come into existence and you have no obligations to Buyer.
You will have earned a premium of AUD 4,651.16. You may choose to offset this against any costs you incur in connection with your underlying exposure.
...knock-in level reached and AUD is below strike price
If, on the expiry date, the AUD/USD exchange rate is below the strike price of 0.6500, Buyer will not exercise the option and it will lapse. You will have no obligation to provide AUD to Buyer in exchange for USD. Again, you will have earned a premium of AUD 4,651.16.
...knock-in level reached and AUD is above strike price
If, on the expiry date, the AUD/USD exchange rate is above the strike price of 0.6500 (assume it is 0.6550), Buyer will exercise the Sold Knock-In Call Option. You will then need to exchange USD 100,000 at the strike price (0.6500). You will need to provide AUD 153,846.15 ( = USD 100,000 /
0.6500) to Buyer in exchange for USD 100,000. Your exchange rate will therefore be less favourable than it would have been if you had not entered into the Sold Knock-In Call Option.
If you had not entered into the Sold Knock-In Call Option, you would have exchanged currencies at the prevailing exchange rate of 0.6450. You would then have needed AUD 155,038.76 ( = USD 100,000 / 0.6450), to obtain USD 100,000. The premium of AUD 4,651.16 you earned by selling the option will
be depleted as a result.
The following illustrates:
· the effective rate of exchange if Buyer exercises the option (after taking into account the premium you receive), and
· the level at which exchange rate movements negate the premium you receive for selling the Sold Knock-In Call Option
In this example, if the option is exercised, the effective rate at which you will exchange AUD for USD will be:
USD face value of option .
*AUD face value of option - ** AUD premium = USD 100,000 .
AUD 153,846.15 - AUD 4,651.16 = USD 100,000.
AUD 149,194.99 = 0.6703
*AUD face value of option is the USD value divided by the strike price of 0.6500.
**AUD Premium is USD premium divided by the AUD/USD exchange rate at the time the option was entered into (being 0.6450).
As a result of Buyer exercising the option, you are required to exchange currencies at the rate of 0.6500. However when you factor in the amount of the premium you have received, your effective rate of exchange becomes 0.6703.
Given the effective rate of exchange of 0.6703, if the AUD/USD exchange rate at expiry is higher than 0.6703, the premium you receive will be fully negated.
A rate above 0.6703 will result in you suffering an actual loss (if you no longer need the USD and need to re-exchange it for AUD), or an opportunity cost (if you still need the USD, as you would have been better off had you not entered into the Sold Knock-In Call Option). If the AUD/USD exchange rate on the
expiry date is between 0.6500 and 0.6703, the premium received by you will be partially negated.
What is a Foreign Exchange Sold Knock-In Put Option?
A Sold Knock-In Put Option is an income-generating product for customerswho are carrying out transactions using a foreign currency.
What are Sold Knock-In Put Options used for?
A Sold Knock-In Put Option generates income in the form of a one off premium. You earn the premium by selling the option to Buyer.
Unlike a standard Sold Put Option, the Sold Knock-In Put Option possesses an additional structural feature termed a knock-in level. The option will only come into existence if the knock-in level is reached during the term of the option.
A Sold Knock-In Put Option is not designed to provide protection against movements in the relevant currency.
Do I have sufficient knowledge about this product?
This product will only be suitable if you have a good understanding of foreign exchange markets and the way that option products work. In particular, if Buyer exercises the option you need to understand how it will affect you financially.
Buyer will not take your position into account when deciding whether or not to exercise the option.
If Buyer chooses not to exercise the option or if the knock-in level is not achieved, there will be no exchange of currencies. For this reason, selling a Sold Knock-In Put Option is not suitable for an investor who needs to have a particular currency exchanged at a known rate at a particular date in the future.
If you are not confident about your understanding of these things, this product may not be suitable for you and we strongly suggest you seek independent advice before making a decision about this product.
What does a Sold Knock-In Put Option do?
A Sold Knock-In Put Option is an agreement between the seller (you) and the buyer of the Sold Knock-In Put Option (Buyer). You receive a premium for selling a Sold Knock-In Put Option to Buyer. The option comes into existence only if the predetermined knock-in level is reached before the cut-off time on the expiry date. If this knock-in level is reached, Buyer obtains the right, but not the obligation, to sell you an agreed amount of one currency for another nominated currency at an agreed price (the strike price).
This takes place at a specified future date, generally referred to as the expiry date.
If the knock-in level is not reached before the cut-off time, the option does not come into existence and Buyer has no right to exchange currencies.
The two currencies in the Sold Knock-In Put Option are referred to as the currency pair. The currency pair must be acceptable to Buyer.
You may nominate the strike price, knock-in level, the expiry date and the currency pair and amount. They are tailored and fixed from the outset according to your needs. The nominations you make will affect the amount of the premium payable.
What do I receive?
Buyer pays you a premium for your Sold Knock-In Put Option. We calculate the premium we are prepared to pay for each Sold Knock-In Put Option on a transaction by transaction basis.
What important factors affect the premium at any point of time?
To calculate the premium payable, we take several factors into account:
· the strike price
· the knock-in level
· the expiry date
· current market exchange rates
· volatility of the underlying currency at that time, and
· prevailing interest rates of the countries whose currencies are being exchanged
When do I receive this premium?
We will advise you of the premium we are prepared to pay before entering into a Sold Knock-In Put Option.
Premiums are generally payable within two business days of entering into a transaction.
Are there any Buyer credit requirements?
Before entering into a Sold Knock-In Put Option, Buyer will assess your financial position to determine whether or not your situation satisfies our
normal credit requirements. Buyer will advise you of the outcome of this review as soon as possible.
If your application is successful, you will need to sign Buyer’s standard finance documentation. This documentation sets out the terms of the credit
approval and other matters relevant to your application.
Cost of product
You do not pay Buyer any fees or charges when you sell a Sold Knock-In Put Option to Buyer. However, you should be fully aware of and comfortable with the potential financial costs to you if the option is exercised.
You should make sure you fully understand the financial implications of the option that you are considering selling.
Advantages/benefits
· A Sold Knock-In Put Option enables you to earn a premium. You know how much premium you will receive when you sell the Sold Knock-In Put Option.
· A Sold Knock-In Put Option is flexible. It can be tailored to meet your particular requirements.
· A Sold Knock-In Put Option can be cancelled before its expiry date, giving you the ability to eliminate your exposure (however, there may be a cost to you in doing so - see Early termination section for further details).
Disadvantages/risks
· If the knock-in level has been reached and the prevailing exchange rate is worse for us than the strike price at expiry, the option will normally be exercised by Buyer. You must then deliver your currency to Buyer at the strike price, which would be less favourable to you than the current exchange rate.
· If the option is exercised and you do not require the underlying currency and choose to convert it to another currency, you may receive less than you delivered under the option. This loss is unlimited, depending on the exchange rate for the currency pair and the strike price of the option.
· If the option is exercised and you do not have the currency you are required to deliver, you will need to purchase it in order to meet your obligations under the Sold Knock-In Put Option. As the exchange rate at which you can buy that currency will be less favourable than the strike price of the option, this will result in a loss to you. This loss is potentially unlimited.
· A Sold Knock-In Put Option is not designed to provide protection against a movement in the relevant currency. The benefit of the product is limited to the premium received.
· Early termination may result in costs to you. Those costs may be higher than the premium you received for the Sold Knock-In Put Option.
· There is no cooling off period. Once you have sold the option, you are bound by its terms.
· We generally have performance obligations under all the financial markets products we enter into. Customers depend on us to perform our obligations. Our ability to do so is linked to our financial wellbeing.
This type of risk is commonly referred to as credit or counterparty risk.
When can knock-in occur?
A Sold Knock-In Put Option will immediately come into existence if the exchange rate for the currency pair trades at or beyond the knock-in level.
This may occur at any time before the cut-off time on the expiry date and on any global inter-bank foreign exchange market. We will monitor the relevant
foreign currency markets to determine whether or not this occurs. We will advise you if it does as soon as practicable.
The cut-off time will be specified in the confirmation that outlines the commercial terms of the transaction.
What happens if the knock-in level is not reached?
If the knock-in level is not reached before the cut-off time, the option does not come into existence.
What happens if the knock-in level is reached?
If the knock-in level is reached before the cut-off time, the option comes into existence. Buyer then has the right to exercise the option on the expiry date.
If Buyer exercises the option, you must exchange currencies at the agreed strike price.
If Buyer does not exercise the option at expiry, it will lapse.
Settlement
Exercise and settlement can only take place if the Sold Knock-In Put Option has been knocked-in.
What happens when an option is exercised?
Buyer will inform you whether or not we intend to exercise the option on the expiry date.
If Buyer exercises the option, settlement will occur on the value date, that is two business days after the expiry date. On this date, you will be required to deliver your currency to Buyer. You can provide foreign currency either by telegraphic transfer or by transferring funds from a foreign currency account/deposit. You must provide Australian dollars in clear funds.
When we receive the funds, we will deposit any payments into a Buyer bank account (in your name) denominated in the relevant currency.
Alternative arrangements can be made with Buyer’s approval.
Can I terminate the option before expiry?
You may ask us to terminate the Sold Knock-In Put Option at any time up to the expiry date. Buyer will then provide you with a quote for cancelling the option.
What will be the value of the option on early termination?
Our quote will incorporate the same variables (the strike price, knock-in level, currency amount and expiry date) used when pricing the original option. These will be adjusted for prevailing market rates over the remaining term of the option.
We will also need to consider the cost of reversing or offsetting your original transaction. When doing this Buyer takes into account the current market rates that apply to any offsetting transactions.
What happens if I accept?
If you accept the quote, we will cancel the option. You should appreciate that you may lose money as a result of early termination.
The examples below are indicative only and use rates and figures we have selected to demonstrate how the product works. In order to assess the merits of any particular option, you would need to use the actual rates and figures quoted to you at the time. Note that the calculations below include rounding of decimal places.
Scenario
Assume that you are an Australian based exporter due to receive 100,000 United States dollars (USD) in three months’ time in payment for goods sold
overseas. At that time you will need to convert the USD 100,000 received into Australian dollars (AUD). Assume that the current AUD/USD exchange rate is 0.6450.
If I do nothing, what exchange rate risks do I face?
If you do nothing, the amount of AUD you will receive in 3 months’ time for your underlying exposure will depend on the exchange rate at that particular time.
If the AUD/USD exchange rate goes down, you will receive more AUD for your USD. Assume in this example that the AUD/USD exchange rate falls to 0.6200, then you will receive:
AUD 161,290.32 ( = USD 100,000 / 0.6200)
USD face value of option .
*AUD face value of option + ** AUD premium = USD 100,000 .
AUD 151,515.15 + AUD 4,651.16 = USD 100,000
AUD 156,166.31 = 0.6403
*AUD face value of option is the USD value divided by the strike price of 0.6600.
**AUD Premium is USD premium divided by the AUD/USD exchange rate at the time the option was entered into (being 0.6450).
As a result of Buyer exercising the option, you are required to exchange currencies at the rate of 0.6600. However when you factor in the amount of the premium you have received, your effective rate of exchange becomes 0.6403.
Given the effective rate of exchange of 0.6403, if the AUD/USD exchange rate at expiry is lower than 0.6403, the premium you receive will be fully negated.
A rate below 0.6403 will result in you suffering an opportunity cost, as you would have been better off had you not entered into the Sold Knock-In Put Option. If the AUD/USD exchange rate on the expiry date is between 0.6600 and 0.6403, the premium received by you will be partially negated.
Linear Mode
