While this blog is really more about trading currencies in the Foreign Exchange market (Forex currency trading or options trading market), I’d like to talk a little about a more general subject, namely options trading strategies. An option strategy is put into place when you combine one or more option positions. This might also occur with an underlying stock position as well. Maybe I should back up and mention what an option is first. An option is a financial instrument that gives the buyer a right to buy (for a call option) or sell (for a put option) underlying security at some specific point of time in the future. This aspect is called the European option. Or or until some specific point of time in the future (which is called the American Option) for a strike price, which is fixed in advance. This happens when the option is actually bought.

As the underlying stock increases its value, this causes the calls to increase in value as well. At the same time, if the underlying stock decreases in value, the put decreases as well.

So, what then, are some of the various currency options trading strategies? Well, before you can can decide which of the 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)  to use you need to determine if you are bullish or bearish with regards to the market.

O.K. Let’s say your are a market bull. You might buy a call to insure that you limit your losses on the paid premiums if you fear increasing volatility with an undervalued option.  By the same token, if you thought that the option position was bearish you could buy a put to limit losses on an undervalued option that you found particularly volatile. For the currency options trading investor, it’s simple. Currency trading options, if used correctly, can give you two great advantages that can lead you to long term trading success.

The first is buying your option for huge gains. If you are the one who buys an option you can certainly gain the huge advantage of staying power. There is no need to worry about a potential price swing against you in the short term, as long as your option trades in the money at expiry- you win. There is unlimited profit potential and the only risk is the premium you paid for the option. But you want to keep in mind, always buy at or in the money options only so that you have plenty of time.

Another way to make huge money is to sell the option itself. This is a very popular options trading strategy. A big key here is you have pretty good odds for your side and while the gains may be limited ( because the buyer wins big if the option works out) they do add up.

Whatever your own  options trading strategies are, make sure you do your homework, make a workable plan…and the sky’s the limit!