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Forex Option Breakout Strategy

There has been an explosion of interest in forex trading over the last few years and it is little wonder when you see some of the huge moves that have been occurring in the FX market.  While most media attention has been fixated on negative news from the stock market since the GFC and the perceived lack of opportunities, the FX market has gone on in leaps and bounds.

The increase in volatility in the forex market has coincided with the advent of sophisticated online FX trading applications that allow private traders access to news and information that was formerly reserved for banks and professional fund managers.

The purpose of this chapter is to show how you can participate and profit from the increased global volatility that is happening right now in the FX market. The forex option breakout strategy is designed to profit from market moves in any direction with a fixed and limited risk exposure. As with the other strategies revealed in this book you will also be introduced to an insider’s view of the best possible follow-up strategies to take into account virtually all contingencies that occur following your entry into the strategy.

The forex option breakout strategy:

                • is a non-directional breakout strategy

                • uses two separate option series with the same option expiry

                • has a bought call option and a bought put option

                • both the call and put option are out of the money

                • has a maximum risk of the combined premiums paid

                • has unlimited profit potential on up or down moves.

The forex option breakout strategy is also referred to as a bought or long strangle. At its core it is effectively a volatility seeking strategy which thrives in an environment where you expect a big movement in the underlying market to occur but you may not be sure as to which direction. To maximize your chances of success it is instituted only when there are potential key technical or fundamental drivers that can cause the currency to break out in one direction or another. The ultimate aim for this strategy is for a movement big enough to cause the combined value of the call and put options to increase to a higher price than was initially outlaid. Follow-up strategies can then be implemented to lock in gains. Let’s have a look at Figure 9.1.

Forex Option, Breakout Strategy, Forex trading books, books, options, motions, option in motions, fx trader, forex, Nick Katiforis, Billy Macris
FIGURE 9.1: Forex option breakout strategy

 

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