I have some experience with equity options, but none with trading
options on currency futures as a hedge, but my understanding is
the nuances are about the same - greeks, etc. It seems to me that
if you open a spot trade with 2 to 4 week timeframe and open an
opposing call or put option on the currency future as a hedge, that
you would have almost a risk free trade. You can get up to 400:1
leverage on your spot trade and unlimited profit potential on your
call or put. The only downside I can think of is if there is not enough
volatility before your option expires or your spot trade consolidates,
which is unlikely since many currency pairs move 200 pips or more per
month. If anyone believes my assumption is not correct, please
set me straight.
options on currency futures as a hedge, but my understanding is
the nuances are about the same - greeks, etc. It seems to me that
if you open a spot trade with 2 to 4 week timeframe and open an
opposing call or put option on the currency future as a hedge, that
you would have almost a risk free trade. You can get up to 400:1
leverage on your spot trade and unlimited profit potential on your
call or put. The only downside I can think of is if there is not enough
volatility before your option expires or your spot trade consolidates,
which is unlikely since many currency pairs move 200 pips or more per
month. If anyone believes my assumption is not correct, please
set me straight.