Unfortunately, there is not a good vehicle for trading British Pound Options, otherwise volume would be excellent. Between the ETF Currency Shares British Pound Sterling, which has extremely limited liquidity and Options on British Pound Futures, which although significantly more liquid is not in the league of either Stock Indices like SPY (S&P 500 ETF Trust) or Options on Euro Futures, they provide an Options Trading Platforms for either speculating on the direction or hedging one’s requirements in the British Pound. The key to long-term successful options trading is not only having the correct market bias, but insuring that you get the best value possible when trading any options contract.
Tuesday’s trading, which included trading from Sunday night and Monday as well when considering the ranges of the market action, included tremendous volatility in both Silver and Crude Oil. Silver’s range of 8.3% was colossal while Crude Oil fell more than 4%. When trading options in volatile markets understanding the Delta of the contract provides a clue as to how far the underlying has to move in your favor to make money. If there is not significant liquidity, then a lower delta options contract requires a larger move for you to make money. The Options Guide PDF provides an A to Z look at Options Trading.
Whether you are Bullish or Bearish, if you have a long-term outlook, the Implied Volatility Skew can help you create an Options Strategy that should meet your risk/reward requirements. Whether it is a Bull or Bear Fence (always be sure to take a look at the Skew) or an Options Pairs Strategy of Selling Call Spreads and Buying Put Spreads (or vice versa), strategies are available if you are creative.
If you feel that Gold is topping out and that the Relative Strength Index is too high, you can Sell a Bear Fence and take advantage of the Implied Volatility Skew. This is particularly helpful for those of you who are already long and would like to put on a hedge. Otherwise, as with all Short Options Strategies, since you are short a Call, you have unlimited risk. By reviewing the Options Chain and comparing the price of different strikes, you can locate the proper strategy for you.
The British Pound is clearly a market leader now. It used to be Crude Oil, but should the Pound continue to fall, it can’t be great for global equity markets. At OSN we focus on providing the appropriate options trading strategy to meet an individual’s risk/reward parameters. Sign up for an Individual Options Trading Webinar to get started on analyzing options as a market-maker would. Understanding the implications of liquidity and delta, historical and implied volatility, the skew and its impact on a wide array of Options Trading Strategies will help you understand options in a different way.
At its low, the British Pound fell more than 2% in the trading session beginning on Sunday night and ending Tuesday evening. This is a significant amount of volatility for a currency, but these are clearly extraordinary times for the Pound, Metals and Stocks. Volatility provides great trading opportunities, but be sure that you trade with appropriate risk management techniques. Options Trading provides tremendous leverage; that’s not always a good thing.
Options trading involves significant risk and is not suitable for every investor. The information is obtained from sources believed to be reliable, but is in no way guaranteed. Past results are not indicative of future results.