Many traders love the idea of currency options, they have unlimited gains and limited risk sounds great in theory, but in practice 90% expire worthless!
This article is all about how the pros use currency options to generate big consistent gains and how the losing majority don't understand the odds of success.
This article will give you 3 powerful ways to make huge money in currency options
Don't gamble with options!
Consider this simple scenario.
You're betting on a horse race and you have a 3:1 favourite and you have a 15:1 outsider.
Which one is the better bet?
Well, bet on the outsider and you have bigger winning potential, but betting on the favourite gives you a better chance of winning.
How often do you see a betting shop go broke?
Not very often they know the odds of success and the betting odds reflect this. It's obvious! Bet on the favourite.
Currency options and odds
In currency options though traders continually take the outside long shot bet.
They buy options way out of the money with short time to expiry and this means the odds of winning rely on lady luck.
If you want to put the odds in your favour you need to trade options for less potential gains but greater odds of success and this involves keeping in mind two points:
1. Buy at or close to the money
Don't take the long shot; buy at or in the money options, in strongly trending markets.
This way you have time for the trend to take a correction and move in the right direction and keep in mind a trend in motion is more likely to continue than reverse.
If you do this, the odds are more in your favour and that what currency options' trading is all about.
Brokers and guru's like to tempt you with the long shots and appeal to your greed, Don't listen, stay with at or in the money currency options and only trade trending markets this scenario is where your chances of success are highest.
2. Get time on your side
FACT: The shorter the time to expiry of currency options the greater the affect of time decay.
Many traders think these options are cheaper (they are in terms of cost) but not in their odds of success!
Make sure you give yourself plenty of time and keep it on your side.
Buying in or at the money currency options with a lot of time value costs you in terms of profit potential. However, potential that does not become cash in your bank is just that - potential.
Keep in mind the horse betting scenario earlier. Do you know someone who bets on the outsider and wins consistently? I don't.
Keep profit potential realistic
Ok, so you have less profit potential, but you have greater odds of success.
Now let's look at the best strategy of all.
3. How to trade with odds of 90% success
Consider this 90% of currency options bought expire worthless.
On the other hand, the person who has sold the option has profit odds of 90%.
The real way to make money is selling options. What options do you sell?
You guessed it already! Options out of the money with short time to expiry.
In reality option selling looks a bad bet - unlimited risk for a limited reward, but keep in mind the odds are hugely stacked in your favour.
Huge consistent gains
To sell currency options you need to be well capitalized and take short term swings against you. However, if you sell out the money options with time decay killing them and you spread your risk, you can pile up huge gains over time.
The above is not rocket science! Its common sense, you don't get anything for nothing in financial markets and limited risk and the unlimited rewards of currency options comes at a cost.
Understand this and you are well on your way to making big gains in currency options.
If you are small trader be patient and take the high odds of success for lower potential gains. If you are large trader sell options and take advantage of the majority of mug traders who are keen to give you their money.
Currency options can make you money follow the above and get the odds on your side, that's all you can do in financial trading and over time you could pile up some huge profits. Good luck! |
