WELCOME TO FXDD S BREAKOUT OPTIONS STRATEGY GUIDE

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Brittney Cannon
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2 INTRODUCTION WELCOME TO FXDD S BREAKOUT OPTIONS STRATEGY GUIDE Breakout options strategies have been popularized as options trading strategies that allow traders to profi t regardless of the direction of the exchange rate trend or whether it breaks out. The ability for breakout options strategies to allow traders to profi t when exchange rates trend in more than one direction has given options trading a legendary edge over other fi nancial instruments. While breakout means trading volatile currencies that might make a sudden big up or down price move, breakout also means volatility. Breakout options strategies are capable of trading and profi ting from changes in volatility directly and display their real power when the direction of volatility goes in the favor of the options trader. There are many breakout options strategies designed to take advantage of changes in volatility and sudden price breakouts. This tutorial will cover the different strategies and their underlying logic. Breakout options strategies can be helpful ways to invest or leverage existing positions for traders with a volatile market sentiment. The information contained within is purely for education purposes and must not be construed as to indicate any kind of investment advice. HIGH RISK WARNING: Before you decide to trade either foreign currency ( Forex ) or options, carefully consider your investment objectives, experience level, and risk tolerance. Over-the-counter leveraged Forex spot trading ( spot trading ) and options trading ( options trading ) both carry high levels of risk that may not be suitable for all investors. Educate yourself on the risks associated with spot and options trading, and seek advice from an independent fi nancial or tax advisor if you have any questions. With spot trading, you could lose some or all of your initial investment; do not invest money that you cannot afford to lose. Leverage, offered as part of spot trading, creates additional risk and loss exposure. With options trading, you could not only lose all of your initial investment, but the potential to lose money is potentially unlimited when you write an option. Purchasers and sellers of Forex options should familiarize themselves with the type of option (i.e., put or call) that they contemplate trading and the associated risks. You should calculate the extent to which the value of the options must increase for your position to become profi table, taking into account the premium paid, other transaction costs, if any, and rate of premium/time decay. BREAKOUT OPTIONS STRATEGIES 2

The ability for breakout options strategies to allow traders to profi t when exchange rates trend in more than one direction has given options trading a legendary edge over other fi nancial

3 BEFORE YOU GET STARTED Practice Accounts. Test these strategies risk-free with an FXDD Options Trader demo. Register now for your free practice account at FXDD Options Trader Completely customizable Downloadable or Web-based Built-in strategy optimizer Risk manager simulator Trade spot FX or FX options Visit our YouTube channel for platform tutorials and basic education. Watch Videos: BREAKOUT OPTIONS STRATEGIES 3

FXDD Options Trader Completely customizable Downloadable or Web-based Built-in strategy optimizer Risk manager

4 LONG STRADDLE This strategy consists of buying a call and buying a put, both with the same strike price and expiration. In this strategy, it is typical for both options to be out-of-the-money. Buy 1.35 Buy 1.35 DIFFICULTY: Beginner RISK LEVEL: Low MAX GAIN: Unlimited MAX LOSS: Net Premium Paid BREAKOUT OPTIONS STRATEGIES 4

In this strategy, it is typical for both options to be out-of-the-money.

5 LONG STRANGLE This strategy consists of being long a call option and long a put option with the same expiration, but where the call strike price is above the put strike price. It is typical for this strategy that both options are out-of-the-money. Buy 1.37 Buy 1.32 DIFFICULTY: Beginner RISK LEVEL: Low MAX GAIN: Unlimited MAX LOSS: Premium Paid BREAKOUT OPTIONS STRATEGIES 5

It is typical for this strategy that both options are out-of-the-money. Buy Call @ 1.

6 SHORT CALL CALENDAR SPREAD This strategy consists of being long one call option and shorting a second call option with a more distant expiration. The strategy most commonly involves calls with the same strike (horizontal spread), but can also be done with different strikes (diagonal spread). Buy Mar Sell Oct Current Month: January DIFFICULTY: Intermediate RISK LEVEL: High MAX GAIN: Net Premium Received MAX LOSS: Near Option expires worthless, Unlimited BREAKOUT OPTIONS STRATEGIES 6

The strategy most commonly involves calls with the same strike (horizontal spread), but can also be done with different strikes

7 SHORT PUT CALENDAR SPREAD This strategy consists of being long one put option and shorting a second put option with a more distant expiration. The strategy most commonly involves puts with the same strike (horizontal spread), but can also be done with different strikes (diagonal spread). Buy Mar 1.35 Sell Oct 1.35 Current Month: January DIFFICULTY: Intermediate RISK LEVEL: High MAX GAIN: Net Premium Received MAX LOSS: Near Option expires worthless, Unlimited BREAKOUT OPTIONS STRATEGIES 7

The strategy most commonly involves puts with the same strike (horizontal spread), but can also be done with different

8 SHORT CALL BUTTERFLY This strategy consists of being long two calls at middle strike and shorting one call each at lower and upper strike. All the options must be the same expiration. The upper and lower strikes (wings) must both be equidistant from the middle strike (body). Sell 1.33 Buy Sell 1.37 DIFFICULTY: Advanced RISK LEVEL: Medium MAX GAIN: Net Premium Received MAX LOSS: High Strike - Middle Strike - Net Premium Received BREAKOUT OPTIONS STRATEGIES 8

The upper and lower strikes (wings) must both be equidistant from the middle strike (body). Sell Call @ 1.

9 SHORT PUT BUTTERFLY This strategy consists of being long two puts at middle strike and shorting one put each at lower and upper strike. The upper and lower strikes (wings) must both be equidistant from the middle strike (body), and all the options must be the same expiration. The strategy is useful when expecting the underlying to be outside of range at expiration of options. DIFFICULTY: Advanced RISK LEVEL: Medium MAX GAIN: Net Premium Received MAX LOSS: High Strike - Middle Strike - Net Premium Received Sell 1.32 Buy Sell 1.38 BREAKOUT OPTIONS STRATEGIES 9

The strategy is useful when expecting the underlying to be outside of range at expiration of options.

10 LONG CONDOR This strategy consists of being long one call and shorting another call with a higher strike; also being long one put and short another put with a lower strike. The strategy is useful when expecting a sharp move up or down. This strategy can be thought of as a bull call spread and a bear put spread. DIFFICULTY: Advanced RISK LEVEL: Low MAX GAIN: (High Call Strike - Low Call Strike) OR (High Put Strike - Low Put Strike) - Net Premium Paid Sell 1.38 Buy 1.37 Buy 1.36 Sell 1.35 MAX LOSS: Net Premium Paid BREAKOUT OPTIONS STRATEGIES 10

This strategy can be thought of as a bull call spread and a bear put spread.

11 LONG IRON BUTTERFLY This strategy consists of shorting a call at upper strike, being long a call and long a put at middle strike, and then shorting a put at lower strike. The strategy is useful when expecting a sharp move either up or down in underlying currency price during the life of the options. DIFFICULTY: Advanced RISK LEVEL: Low MAX GAIN: High Strike - Middle Strike - Net Premium Paid Sell Call 1.37 Buy Call 1.35 Buy 1.35 Sell 1.33 MAX LOSS: Net Premium Paid BREAKOUT OPTIONS STRATEGIES 11

The strategy is useful when expecting a sharp move either up or down in underlying currency price during the life of the

12 CONTACT INFORMATION If you would like more information on FXDD and trading FX options, we would love to hear from you! LIVE CHAT: Talk to a Forex specialist in real time. CALL US: US: sales@fxdd.com.mt BREAKOUT OPTIONS STRATEGIES 12

LIVE CHAT: Talk to a Forex specialist in real time. https://secure.fxdd.

13 COPYRIGHT FXDD 2013

WELCOME TO FXDD S RANGE & TARGET OPTIONS STRATEGY GUIDE

GLOBAL INTRODUCTION WELCOME TO FXDD S RANGE & TARGET OPTIONS STRATEGY GUIDE Range & target options strategies are options strategies that are designed to help traders profi t when the underlying exchange