The Forex Options market started as an over the counter financial vehicle for large banks, financial institutions and large international corporations to hedge against foreign currency exposure. Like the Forex spot market, the Forex Options market is considered an “interbank” market. However, with the plethora of real-time financial data and Forex Option trading software available to most investors through the internet, today’s Forex Option market now includes an increasingly large number of individuals and corporations who are speculating and/or hedging foreign currency exposure via telephone or online Forex trading platforms.
Forex Option trading has emerged as an alternative investment vehicle for many traders and investors. Options markets have the seal of approval of respected professionals, providing insurance for your portfolio, or for some of the individual stocks within it. Writing call options is best considered as a separate strategy in itself, to be used in conjunction with an existing portfolio of individual stocks when markets are relatively stable, or ‘calming down’ after a period of intense volatility.
Strangle option trades are a good way to take advantage of a volatile situation when you have factored in a 10% move or more in a stock. Many companies can experience these types of swings on earnings announcements, FDA news, unexpected news, or a host of other events. As option traders, sometimes direction can be hard to call and in these cases, it’s better to hedge your bets instead of throwing all of your eggs in one basket.
Benefits of Listed Index Options
Like equity options, index options offer the investor an opportunity to either capitalize on an expected market move or to protect holdings in the underlying instruments. The difference is that the underlying instruments are indexes. These indexes can reflect the characteristics of either the broad equity market as a whole or specific industry sectors within the marketplace.
Diversification
Index options enable investors to gain exposure to the market as a whole or to specific segments of the market with one trading decision and frequently with one transaction. To obtain the same level of diversification using individual stock issues or individual equity option classes, numerous decisions and transactions would be required. Employing index options can defray both the costs and complexities of doing so.
Conclusion
In essence Option market is a way of generating extra income from a long-term portfolio of blue chip shares. It is time to pay attention to this market and learn as much as we can about it. We are behind in knowledge and information about Options and this group is the chance to get involved in a really good opportunity.
