Thursday, July 18th, 2019

Trading Foreign Currency Options

There are two reasons for trading foreign currency options. International businesses commonly make or receive payment in currencies foreign to their own. These companies trade foreign currencies and use Forex options trading in order to manage currency risk. Speculators look to take advantage of changes in currency value and may trade [...]

Understanding Underlying Equities

July 5, 2013 by Jim Walker  
Filed under Options Trading Tips

When trading options, trading futures, buying convertible bonds, engaging in equity swaps, or trading exchange traded derivatives, understanding underlying equities is basic to success. The market in the overlying option, future, etc. is dependent upon the market in underlying equity. For example, when there is a stock split, a company merges with another company, or a company makes an unusually large one time cash distribution these events fundamentally change the value of the over lying option. Understanding underlying equities is essential to understanding options trading. Asking what is an option worth is basically asking the value and promise of the underlying equity.

The underlying security of an option is usually common stock but it can be American Depository Receipts (ADR’s), preferred stock, or other instruments. In the event of a merger or acquisition the underlying equity may change from common stock to another instrument. Different kinds of options trading will be affected differently in the event of a merger. For example, in a merger some shareholders may elect to receive cash and others may elect to receive shares of the surviving company. If a trader has engaged in a long straddle options strategy in the company that is being merged into the other he has the option and right to exercise the call option that is half of his strategy. This will allow him to buy the stock if he exercises prior to the date at which shareholders must choose cash or the surviving stock. Understanding the underlying equities in this situation will allow the trader to profit if having stock in the merged company is profitable. It will also allow the trader to let the call option expire unexercised if exercising would be a losing proposition.

Stock Options in a Crisis

There always seems to be trouble in the world and it invariably affects the stock market. Many traders as well as long term investors choose to use stock options in a crisis situation. There are various options trading strategies but the use of stock options in a crisis is unique in that it can be [...]

Online Options Trading

Stocks go up and stocks go down. Commodities rally and rallies fizzle. The Euro is in free fall and the pulls out. How can a stock, commodity, or currency trader profit from these market moves? In today’s world the internet and electronic trading make online options trading a viable way to [...]

Foreign Currency Options Trading

Foreign currency options trading serves two purposes for two groups of traders. Companies doing business internationally commonly make or receive payment in currencies foreign to their own. Thus they must trade foreign currencies and they engage in Forex options trading in order to reduce currency risk. Currency speculators seek to take advantage of changes [...]

Forex Option Trading Minimizes Foreign Currency Risks in Forex Trading

The Forex Option trading market was initially utilized by large international banks and companies as a buffer for their exposure to various foreign currencies in the world market. Today, with an approximate 4 trillion dollars traded on the foreign exchange market daily, many other small players have entered in to the playing field in the [...]