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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 rate remains stagnant or within a predetermined price range. Range & target options strategies are unique opportunities only available to options traders. No other fi nancial instruments allow a trader to profi t when an exchange rate remains totally still. For range & target options strategies, neutral does not mean that you profi t only when an exchange rate remains at a fi xed price all the time. Range & target options strategies allow you to profi t not only when the underlying exchange rate remains totally still, but also when it is trading within a neutral trend bounded by a fi xed price range. This tutorial will elaborate on the capabilities of range & target options strategies and their underlying logic. These strategies can be helpful ways to invest or leverage existing positions for traders with a neutral 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. RANGE & TARGET OPTIONS STRATEGIES 2
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 www.fxdd.com/mt. 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: www.youtube.com/fxddglobal RANGE & TARGET OPTIONS STRATEGIES 3
COVERED STRANGLE This strategy consists of being long the underlying and selling a call and put. OUTLOOK: Range RISK LEVEL: High MAX GAIN: Call Strike - Spot Entry Rate + Net Premium Received Buy EURUSD @ 1.35 Sell Call @ 1.37 Sell Put @ 1.33 MAX LOSS: Unlimited RANGE & TARGET OPTIONS STRATEGIES 4
SHORT RATIO CALL SPREAD This strategy consists of being long one call and shorting two calls of the same expiration but with a higher strike. The use of this strategy is primarily intended to profi t if the underlying exchange rate to trade in a limited range or a sharp fall in implied volatility during the life of the options. Buy Call @ 1.35 Sell 2 Calls @ 1.36 OUTLOOK: Range RISK LEVEL: High MAX GAIN: High Strike - Low Strike + Net Premium Received MAX LOSS: Unlimited RANGE & TARGET OPTIONS STRATEGIES 5
SHORT RATIO PUT SPREAD This strategy consists of being long one put and shorting two puts of the same expiration but with a lower strike. The use of this strategy is primarily intended to profi t if either the underlying exchange rate to trade in a limited range or a sharp fall in implied volatility during the life of the options. Buy Put @ 1.35 Sell 2 Puts @ 1.33 OUTLOOK: Range RISK LEVEL: High MAX GAIN: High Strike - Low Strike + Net Premium Received MAX LOSS: Unlimited RANGE & TARGET OPTIONS STRATEGIES 6
SHORT CONDOR This strategy consists of shorting one call and being long another call with a higher strike; also shorting one put and being long another put with a lower strike. All options must be of the same expiration. Typically, the call strikes are above and the put strikes below the current market rate of the underlying and the distance between the call strikes equals the distance between the put strikes. OUTLOOK: Range RISK LEVEL: Medium MAX GAIN: Net Premium Received MAX LOSS: High Call Strike - Low Call Strike - Net Premium Received OR High Put Strike - Low Put Strike - Net Premium Received Buy Call @ 1.37 Sell Call @ 1.36 Sell Put @ 1.33 Buy Put @ 1.32 RANGE & TARGET OPTIONS STRATEGIES 7
SHORT IRON BUTTERFLY This strategy consists of being long a call at upper strike, shorting a call and shorting a put at middle strike, and being long a put at lower strike. All the options must be the same expiration. The upper and lower strikes (wings) must both be equidistant from the middle strike (body). Buy Call @ 1.38 Sell Call @ 1.35 Sell Put @ 1.35 Buy Put @ 1.32 OUTLOOK: Range RISK LEVEL: Medium MAX GAIN: Net Premium Received MAX LOSS: High Call Strike - Low Call Strike - Net Premium Received OR High Put Strike - Low Put Strike - Net Premium Received RANGE & TARGET OPTIONS STRATEGIES 8
LONG PUT BUTTERFLY This strategy consists of shorting two puts at middle strike and being long two puts, one at lower and one at upper strike. The use of this strategy is intended to target the underlying currency price, achieving a specifi c price target at expiration of options. Buy Put @ 1.36 Sell 2 Puts @ 1.35 Buy Put @ 1.34 OUTLOOK: Target RISK LEVEL: Low MAX GAIN: High Strike - Middle Strike - Net Premium Paid MAX LOSS: Net Premium Paid RANGE & TARGET OPTIONS STRATEGIES 9
LONG CALL BUTTERFLY This strategy consists of shorting two calls at OUTLOOK: Target the middle strike and being long two calls, one at lower and one at upper strike. This strategy RISK LEVEL: High is intended to target the underlying currency price, reaching a specifi c price at expiration. MAX GAIN: High Strike - Middle Strike - Net Premium Paid Sell 2 Calls @ 1.35 Buy Call @ 1.37 and @ 1.35 MAX LOSS: Net Premium Paid RANGE & TARGET OPTIONS STRATEGIES 10
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