I’m a new forex trader interested in both spot forex and forex option trading.
I’ve had some thoughts about how forex options might be combined with spot forex to hedge positions in the spot forex market; however, being a new trader, I do not know if my thoughts have any merit or if there are any hedging strategies available that use forex options to hedge spot forex trading.
Can some synergy be obtained by combining trades using forex options with spot forex trading or should the spot forex and the forex options markets only be traded independent of each other.
Perhaps some of you experienced traders can provide me some insight about any available strategies combining forex options with spot forex to hedge positions in the spot forex market.
As long as you get your quantities and price levels correctly matched between the options and the spot positions there’s no reason why you couldn’t use combined positions to make the plays you want in the market.
Hey i’m looking into this more, but can anyone tell me the average premimium decay on one options contract over the period of a day?
I realize that it changes and increases as it gets closer to expiration, but lets just say middle of the month, i buy an at the money contract for 80 pips and i hold the contract for 2-3 days… what kind of premium decay can I expect?
If you can calculate the Theta you can get an approximation of how much the time decay is worth on a day to day basis, but that’s about it. There are too many variables involved for someone to give you a guesstimate, really. Plus, since they are all traded and not just mathematical constructs, you could see effectively no change in the time value priced in over such a short time period.
Thank Rhody. I understand what you’re saying… but hypothetically if i held something for 2 days I should be getting some premium back unless its at expiry correct?
