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By using forex Options, traders of all levels can share in the world of trading time, as well as trading global price action. Option plays can compliment, enhance, and sometimes replace cash market trade with a unique trading vehicle.
The concept of Forex Options when buying a call on an asset that is likely to go up, or buying a put on an asset that is likely to go down, is to take the risk on a potential trade (the stop loss amount), and invest that same amount in an Options play. For example, a spot forex euro trade that has a 60 pip stop loss, on one Standard lot, will equal $600 of risk. If that stop loss gets hit, the spot market trade is dead. However, by placing that same $600 in a euro option, the premium (risk) is now invested in time thus giving the Option time to follow through to it target.
If the pull-back to the original spot market stop loss gets hit, the Options trade is still open until the expiration date is reached, (normally one month away). The $600 premium may have lost some value, but unlike the dead stop on a spot market trade, this Option still has time to try to regain the lost pips if the market is just trying to find direction. The buying of a call to go up, or buying a put to go down limits the risk to the initial premium paid ($600 in this example).
Global Options can be the vehicle to remove the intra-day volatility that impedes the best laid plans of spot/cash market signals, and with the proper risk management responsibilities executed, can provide traders with another opportunity for a plan to come to fruition.
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