Options for shorting AUD vs. USD?

[FlyingFox]

Hi,

I am very new to the world of derivatives and share trading in general. In fact I have yet to find a broker. However I have been reading up on it.

I would like to short the Australian dollar vs the US dollar (I think this is the right terminology; I expect the AUD to drop vs the USD). I am looking at getting some Forex options to do this. I am at time to maturity between 6 and 18 mnths.

The reason I am using options is that:
1) It gives me leverage.
2) Caps my loses to price of options in case the dollar moves the other way.

The perfect scenario would be to get some American style options but these seem to be just academic entities. Vanilla options will do in the mean time.

Any advice on whether using options is a good idea would be appreciated. Also what is the best broker for this? Ideally I would like an Australian based broker.

 

[So_Cynical]

Hi,

I am very new to the world of derivatives and share trading in general. In fact I have yet to find a broker. However I have been reading up on it.

I would like to short the Australian dollar vs the US dollar (I think this is the right terminology; I expect the AUD to drop vs the USD). I am looking at getting some Forex options to do this. I am at time to maturity between 6 and 18 mnths.

The reason I am using options is that:
1) It gives me leverage.
2) Caps my loses to price of options in case the dollar moves the other way.

The perfect scenario would be to get some American style options but these seem to be just academic entities. Vanilla options will do in the mean time.

Any advice on whether using options is a good idea would be appreciated. Also what is the best broker for this? Ideally I would like an Australian based broker.

An easy way to short.

http://www.betashares.com.au/products/name/u-s-dollar-etf/#each-overview

 

[FlyingFox]

An easy way to short.

http://www.betashares.com.au/products/name/u-s-dollar-etf/#each-overview

I have briefly looked into these. What are their advantages over options?

 

[TulipFX]

Why futures and not just short on the spot market?

 

[FlyingFox]

Why futures and not just short on the spot market?

I primarily intend to use the options to hedge my savings with a little bit of speculation. The advantage of options as I see it is that I have not obligation. If the dollar remains stable or increases, all I lose is the options price.

As I understand it, this is not true for shorting the spot market. Moreover, there is an intrinsic leverage in the options. Please correct me if there if there is a flaw in my logic.

 

[TulipFX]

I primarily intend to use the options to hedge my savings with a little bit of speculation. The advantage of options as I see it is that I have not obligation. If the dollar remains stable or increases, all I lose is the options price.

As I understand it, this is not true for shorting the spot market. Moreover, there is an intrinsic leverage in the options. Please correct me if there if there is a flaw in my logic.

Not at all. Spot on reasoning.

 

[FlyingFox]

Not at all. Spot on reasoning.

Thanks TulipFX. Good to know that I am not way off the mark. Any pointers as to the best place to get FX options?

I might tinker with the spot markets after I have some knowledge under my belt and software. May not happen for a while.

 

[TulipFX]

Thanks TulipFX. Good to know that I am not way off the mark. Any pointers as to the best place to get FX options?

I might tinker with the spot markets after I have some knowledge under my belt and software. May not happen for a while.

There was discussion on this thread: https://www.aussiestockforums.com/forums/showthread.php?t=25830

I don't have specific knowledge to add. This question pops up quite a lot - so would appreciate knowing the answer so I can pass it on to people to ask as we deal purely in automated spot systems.

 

[cbc1]

Hi Flyingfox,

I originaly came onto this website trying to find a FXoptions broker after chasing up lots of false leads.

Firstly and most importantly you MUST find a broker that is connected to the exchange so you can enter
into an option contract at the right price.

I'm glad to tell you this because I figured that if you are new you are probably unaware of what I'm about to tell you.

There are 2 sorts of brokers, the first are the one connected to the actual foreign exchage makets. The second are a bunch of
phony and fake markets that arent connected to an exchange and offer VERY BAD DEALS for your options.

To give you a simple example if you enter into one of these contracts and the market moves in your favor you still might not make any money at all.. Then they charge fees as well. The list of guilty companys :

Igmarkets,
CMC markets,
Halifax,
Saxo Capital Markets,
and a lot more,

This link will give you a small list of exchange connected brokers :

http://www.fxoptions.com/Site/WhereCanFXOptionsBeTraded.aspx

Firstly e-trade don't offer FX options so don't go with them. I also tried signing up with optionsexpress and they said they aren't opening any FXoptions accounts at the moment.

I hope I just saved you a lot of money.

I stopped looking after I found out FX options only expire once a month.

Also I completly agree with you chosing options, I also didn't like the idea of been stuck in a contract that I might have had trouble getting out of. Capping loses is a good idea.
Nor did I like the idea of paying a freakin margin. Yes, if the exchange rate moves in your favor you will be looking at a much healthier return than if you traded the underlying asset. I just checked the prices then on nasdaq and if the exchange moves 10cents in your favor you would probably be looking at a 400% return mbey a little less because of time decay.

You could also jump on the exchanges websites and ask them for a list of their brokers, then again mbey a little more because it looks low in volatility

The FXoptions exchanges are CBO,AOE,NYO,PHO,BOX,ISE,BTO,NSO,CTO,BXO and MIAX.

Best of luck

 

[So_Cynical]

This link will give you a small list of exchange connected brokers :

http://www.fxoptions.com/Site/WhereCanFXOptionsBeTraded.aspx

Also I completly agree with you chosing options, I also didn't like the idea of been stuck in a contract that I might have had trouble getting out of. Capping loses is a good idea.
Nor did I like the idea of paying a freakin margin. Yes, if the exchange rate moves in your favor you will be looking at a much healthier return than if you traded the underlying asset. I just checked the prices then on nasdaq and if the exchange moves 10cents in your favor you would probably be looking at a 400% return mbey a little less because of time decay.

Interesting..i didn't know there was such a thing as FX options.

 

[FlyingFox]

Hi Flyingfox,

I originaly came onto this website trying to find a FXoptions broker after chasing up lots of false leads.

Firstly and most importantly you MUST find a broker that is connected to the exchange so you can enter
into an option contract at the right price.

I'm glad to tell you this because I figured that if you are new you are probably unaware of what I'm about to tell you.

There are 2 sorts of brokers, the first are the one connected to the actual foreign exchage makets. The second are a bunch of
phony and fake markets that arent connected to an exchange and offer VERY BAD DEALS for your options.

To give you a simple example if you enter into one of these contracts and the market moves in your favor you still might not make any money at all.. Then they charge fees as well. The list of guilty companys :

Igmarkets,
CMC markets,
Halifax,
Saxo Capital Markets,
and a lot more,

This link will give you a small list of exchange connected brokers :

http://www.fxoptions.com/Site/WhereCanFXOptionsBeTraded.aspx

Firstly e-trade don't offer FX options so don't go with them. I also tried signing up with optionsexpress and they said they aren't opening any FXoptions accounts at the moment.

I hope I just saved you a lot of money.

I stopped looking after I found out FX options only expire once a month.

Also I completly agree with you chosing options, I also didn't like the idea of been stuck in a contract that I might have had trouble getting out of. Capping loses is a good idea.
Nor did I like the idea of paying a freakin margin. Yes, if the exchange rate moves in your favor you will be looking at a much healthier return than if you traded the underlying asset. I just checked the prices then on nasdaq and if the exchange moves 10cents in your favor you would probably be looking at a 400% return mbey a little less because of time decay.

You could also jump on the exchanges websites and ask them for a list of their brokers, then again mbey a little more because it looks low in volatility

The FXoptions exchanges are CBO,AOE,NYO,PHO,BOX,ISE,BTO,NSO,CTO,BXO and MIAX.

Best of luck

Thanks cbc1,

That's a lot of very valuable information. I think with the non-exchange traders, they are either selling their own options (these are large banks etc so they can) which means they can be more flexible with what they offer but with high fees or they are engineering these using exchange traded options as building blocks.

The disadvantage of exchange traded options seems to be the limited time frames offered. ISE seems to offer either 3mths to maturity or end of quarter maturity for upto a year. But if the price is right, why not.

Ideally I would like American style options, these can be exercised at any time prior to maturity. From what you said, it seems this is what you were looking for/expecting. However these seem to be only academic entities. For my purposes, Vanilla options, exercisable only at maturity will have to do.

I was hoping to go with optionsexpress. Shame they don't offer this as they are advertising it all over the place. The other broker I came across was Interactive brokers. Might look into them.

Thanks

 

[FlyingFox]

Interesting..i didn't know there was such a thing as FX options.

Haha you name it, the financial boffins have created an option, future(s) or derivative for it.....

Seriously though FX options have been around for a while and used very often in finance and industry for hedging. They have not been readily available to retails investors due perhaps because they are seen as of limited use for retail investors who don't export or import goods.

 

[So_Cynical]

.
The disadvantage of exchange traded options seems to be the limited time frames offered. ISE seems to offer either 3mths to maturity or end of quarter maturity for upto a year. But if the price is right, why not.

Ideally I would like American style options, these can be exercised at any time prior to maturity. From what you said, it seems this is what you were looking for/expecting. However these seem to be only academic entities. For my purposes, Vanilla options, exercisable only at maturity will have to do.

Ill quote the ISE site.

What expiration periods are available for FX Options?

FX Options are available for up to four near-term months, plus up to four months from the March quarterly cycle (March, June, September and December). FX Options are also available for up to 10 long-term months, none further out than 36 months.

http://www.fxoptions.com/Site/FAQs.aspx

Euro exercised would be the go for me, cos i don't want to be exercised and would rather just sell on market..the long dates available give a lot of scope.

 

[FlyingFox]

Ill quote the ISE site.



http://www.fxoptions.com/Site/FAQs.aspx

Euro exercised would be the go for me, cos i don't want to be exercised and would rather just sell on market..the long dates available give a lot of scope.

I saw that at the ISE website as well. Considering how hard it is to find a broker that sells these options, I wouldn't hold my breath about getting the 10 mnth plus ones. If you do find somewhere that does, please let us now.

As for Euro vs American, I would take the American. Since these are currency options, I suspect exercising and closing out or selling are very similar. It's not like you will get a bushel of corn or a tonne of copper for exercising it. Please correct me if I am wrong.

 

[prawn_86]

Problem is that the currency markets are OTC so you can't just buy from a centralised source. I work in FX so if you want to PM me with the amounts you are talking about i may be able to help

 

[So_Cynical]

I saw that at the ISE website as well. Considering how hard it is to find a broker that sells these options, I wouldn't hold my breath about getting the 10 mnth plus ones. If you do find somewhere that does, please let us now.

As for Euro vs American, I would take the American. Since these are currency options, I suspect exercising and closing out or selling are very similar. It's not like you will get a bushel of corn or a tonne of copper for exercising it. Please correct me if I am wrong.

Interactive Brokers has these FX options in its products list under "Exchange - ISE Options Exchange (ISE)"

http://www.interactivebrokers.com/e...=iseopt&showcategories=&ib_entity=llc

LOL what the hell is a HOMELAND SECURITY INDEX :dunno:

 

[cbc1]

Fox,

You should contact options express. When I applied a few heated e-mails went back and forth after it said
on their application forms that they want my employers address. I thought this was none of their business and bluntly told them that.( I was getting frustrated at this point because I'd spent weeks trying to find a broker) Then they said that they aren't taking anymore FX accounts. Mbey they didn't like me.
Turns out they only wanted it because they thought I was a stockbroker and they needed to contact my boss.

Sad part is that options express looked like a very valuable site, tonnes of graphs and volatility graphs. Plus options software, a lot of which I didn't understand.


Anyway you should aim to close out ALL your positions because it is far more profitable and you can do this "at anytime you deem necessary". If the exchange was even at $1Au - $1Us it would cost you roughly 2.5c to enter into a contract. Now if the exchange moved in you favor 2.5c you could exercise but you wouldn't have made anything. On the other hand if you closed out at that point you would make roughly, say 2c because you will sell the position for roughly 4.5c from ur 2.5c initial investment. So say 75% return. U also don't actually need the money to execute the contract because all you are doing is trading the contract. No need for the money to execute. So you can dump 95% of your portfolio on the contract and not need the money to execute the contract. I've been trading for a year and never executed a contract.

Don't worry m8 we'll bring u up to speed. Also I am 99% sure that if you exercise a position say on copper, corn or anything like that you wouldn't actually get the copper delivered, the exchange just work out the $ and deposit it into your account! Also, say if you wanted to get the copper delivered then the exchange would just go to the spot market and purchase the amount on your behalf. cha ching.

Also you are talking about selling. If you want to cap losses then you can't "sell to open" any positions because that is the risky side of options (without covering). If the exchange moves against you potentially could lose quite big. Just make sure that you "buy to open". No selling.

These FX options are doing my head in.

 

[skc]

Interactive Brokers has these FX options in its products list under "Exchange - ISE Options Exchange (ISE)"

http://www.interactivebrokers.com/e...=iseopt&showcategories=&ib_entity=llc

LOL what the hell is a HOMELAND SECURITY INDEX :dunno:

I think it lets you bet on the yellow, amber or red alert status.

I wonder if you can buy options on them...

 

[So_Cynical]

I think it lets you bet on the yellow, amber or red alert status.

I wonder if you can buy options on them...

Its in the IB product list "HSX ISE HOMELAND SECURITY INDEX HSX USD"

Ticker is HSX

---------

Edit:

Indices (not tradable, for informational purposes only)

its Shows up in the Indices list (not tradable)

 

[cbc1]

Fox,
I recieved this e-mail from IB, looks like they aren't options.

Thank you for your interest in Interactive Brokers. We offer trading in FX future options, which trade primarily on the GLOBEX. We offer FX future options on the following currencies:

AUD, BRE, GBP, CAD, RMB, CZK, EUR, HUF, ILS, JPY, KRW, MXP, NZD, PLN, RUR, CHF

At Interactive Brokers we specialize in keeping our fees, commission, and interest rates lower than our competitors to save you money in the long run. Our margin rates are 82% lower than our competition according to a side-by-side comparison amongst our six top competitors. In addition to low margin interest we were awarded a 4.3 star low cost broker rating by Barron's, and we have been awarded four or more stars for 8 straight years. We also have a net dollar price improvement vs. the national best bid/offer (NBBO), meaning better executions than our competition. You can see the information from the above-mentioned comparison on our website at the following link:
http://individuals.interactivebrokers.com/en/?f=/en/general/education/comparebrokers.php

I recommend reviewing the following links as you research which broker will best fit your investing needs:

Account Safety:

http://individuals.interactivebrokers.com/en/index.php?f=2334

Trader Workstation Demo:.

http://individuals.interactivebrokers.com/en/index.php?f=1286

Application:

http://individuals.interactivebrokers.com/en/index.php?f=1591

Please feel free to contact us with any other questions you may have. If you have more questions that you would like answered over the phone, please let me know the best time and number to reach you and I would be happy to give you a call.