Sunday, June 15, 2008

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Forex Options - The 2 Golden Rules For Huge Profits

Forex options are a great trading tool if used correctly. They give you unlimited profits with a set risk in advance and allow you to ride out short term volatility.

They are an excellent way to stay in the market and seek huge gains, but you
Must use them correctly and most traders don?t.

Here are your golden rules for options trading:

The Odds

Most people don?t look at the odds of the option they buy making money, they simply get obsessed with the potential profit.

They therefore buy options way out of the money and if it gets to the price and trades in the money they will make a killing.

The big word here is ?if?

Buying way out of the money options a long way from the strike price is like backing the outsider at a horse race.

You will win occasionally but most of the time you will lose and the odds are firmly against you.

The real pro?s do the following:

1. Buy close to the strike

That means buying options that are at or close to the money or in the money.

Keep in mind if your option is not in the money at expiry you lose your entire premium.

This therefore puts the odds in your favour, you may not make as much but your chances of winning are greater and these profits will mount up over time.

The second golden rule of options trading is

2. Get time on your side

The closer and option comes to expiry the more the time premium will eat into the profit.

Therefore buying options with just a few days or few weeks to expiry is not a way to put the odds in your favour.

Get plenty of time on your side and make sure time premium doesn?t kill you.

Forex options are a great trading tool if used correctly novice traders simply look at the unlimited gains and forget about the risk that options trading involves as you have to pay for the limited risk.

Don?t make the same mistake use the two rules above as your basic strategy for trading options.

You will win more often and the profits will add up to some great long term gains over time and that?s the aim of all forex traders.


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