14-fxdd-0030 optionsstrategiespamphlets breakout digi m3 · breakout options strategies 2 welcome...

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BREAKOUT OPTIONS STRATEGIES 2

WELCOME TO FXDD’S BREAKOUT OPTIONS STRATEGY GUIDE

INTRODUCTION

Breakout options strategies have been popularized as options trading strategies that allow tradersto 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.


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

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LONG STRADDLE

DESCRIPTION & TIPS

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.

MAX GAIN: Unlimited

MAX LOSS: Net Premium Paid

DIFFICULTY: Beginner

OUTLOOK: Breakout

RISK LEVEL: Low

EXAMPLE: Buy Call @ 1.35 Buy Put @ 1.35


LONG STRANGLE

DESCRIPTION & TIPS

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. MAX GAIN: Unlimited

MAX LOSS: Premium Paid

DIFFICULTY: Beginner

OUTLOOK: Breakout

RISK LEVEL: Low

EXAMPLE: Buy Call @ 1.37 Buy Put @ 1.32


SHORT CALL CALENDAR SPREAD

DESCRIPTION & TIPS

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).

MAX GAIN: Net Premium Received

MAX LOSS: Near Option expiresworthless, Unlimited

DIFFICULTY: Intermediate

OUTLOOK: Breakout

RISK LEVEL: High

EXAMPLE: Buy Mar Call @ 1.3450 Sell Oct Call @ 1.3450 Current Month: January


SHORT PUT CALENDAR SPREAD

DESCRIPTION & TIPS

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).


MAX LOSS: Near Option expiresworthless, Unlimited

DIFFICULTY: Intermediate

OUTLOOK: Breakout

RISK LEVEL: High

EXAMPLE: Buy Mar Put @ 1.35Sell Oct Put @ 1.35 Current Month: January


SHORT CALL BUTTERFLY

DESCRIPTION & TIPS

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).


MAX LOSS: High Strike - Middle Strike -Net Premium Received

DIFFICULTY: Advanced

OUTLOOK: Breakout

RISK LEVEL: Medium

EXAMPLE: Sell Call @ 1.33 Buy 2 Call @ 1.35 Sell Call @ 1.37


SHORT PUT BUTTERFLY

DESCRIPTION & TIPS

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.


MAX LOSS: High Strike - Middle Strike -Net Premium Received


OUTLOOK: Breakout

RISK LEVEL: Medium

EXAMPLE: Sell Put @ 1.32Buy 2 Puts @ 1.35 Sell Put @ 1.38


LONG CONDOR

DESCRIPTION & TIPS

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.

MAX GAIN: (High Call Strike - Low Call Strike) OR (High Put Strike - Low Put Strike) -Net Premium Paid



OUTLOOK: Breakout

RISK LEVEL: Low

EXAMPLE: Sell Call @ 1.38Buy Call @ 1.37

Buy Put @ 1.36Sell Put @ 1.35


LONG IRON BUTTERFLY

DESCRIPTION & TIPS

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.

MAX GAIN: High Strike -Middle Strike - Net Premium Paid



OUTLOOK: Breakout

RISK LEVEL: Low

EXAMPLE: Sell Call 1.37 Buy Call 1.35

Buy Put @ 1.35 Sell Put @ 1.33


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14-fxdd-0030 optionsstrategiespamphlets breakout digi m3 · breakout options strategies 2 welcome...

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