Stocks & Commodities V. 31:9 (54): Explore Your Options by Tom Gentile
Product Description
Explore Your Options by Tom Gentile
CURRENCY OPTIONS
As I travel the world speaking at various conferences, at some point the discussion usually turns to the world markets. When I broach the currency markets, the top two questions usually are: How can a trader profit from changes in currency values, and second, are there options in the currency markets? The answer to the first question can be best answered by the various articles on forex that may be found elsewhere in this issue or in other issues of this magazine, so I’ll concentrate on the types of options that are traded in the currency markets. The good news is there are indeed options that trade on currencies, but there are differences between these and options in other markets, so it’s good to understand them all before determining what is right for you. Here, I’ll discuss a few of them.
Currency options in your equity account: options on currency ETFs
You don’t have to be a futures or forex trader to hedge or speculate on currency prices. There are several ETFs in the equity markets that correlate directly with foreign currencies. The products listed in Figure 1 are known as CurrencyShares issued by Guggenheim Investments and are listed on the NYSE. These Currency- Shares are exchange traded funds (ETFs) that closely track the spot currency vs. the US dollar. They are similar to most standard ETFs in that you can buy and sell these in units, just like shares of a stock from your brokerage account. Buying shares means that you are expecting the foreign currency to rise against the US dollar. Conversely, shorting currency shares means you are expecting the US dollar to rise against the foreign currency in the pair.
Options on CurrencyShares are available. These are standard-vanilla option contracts, meaning that one contract controls 100 shares, just as with an equity option, and come with strikes and expiration dates that can be entered and exited any time until expiration. As of this writing, CurrencyShares have decent liquidity, especially for the position trader who looks to hold options overnight. For more information on CurrencyShares and options, visit www.etfdb.com or www. nyse.com.
CURRENCY OPTIONS
As I travel the world speaking at various conferences, at some point the discussion usually turns to the world markets. When I broach the currency markets, the top two questions usually are: How can a trader profit from changes in currency values, and second, are there options in the currency markets? The answer to the first question can be best answered by the various articles on forex that may be found elsewhere in this issue or in other issues of this magazine, so I’ll concentrate on the types of options that are traded in the currency markets. The good news is there are indeed options that trade on currencies, but there are differences between these and options in other markets, so it’s good to understand them all before determining what is right for you. Here, I’ll discuss a few of them.
Currency options in your equity account: options on currency ETFs
You don’t have to be a futures or forex trader to hedge or speculate on currency prices. There are several ETFs in the equity markets that correlate directly with foreign currencies. The products listed in Figure 1 are known as CurrencyShares issued by Guggenheim Investments and are listed on the NYSE. These Currency- Shares are exchange traded funds (ETFs) that closely track the spot currency vs. the US dollar. They are similar to most standard ETFs in that you can buy and sell these in units, just like shares of a stock from your brokerage account. Buying shares means that you are expecting the foreign currency to rise against the US dollar. Conversely, shorting currency shares means you are expecting the US dollar to rise against the foreign currency in the pair.
Options on CurrencyShares are available. These are standard-vanilla option contracts, meaning that one contract controls 100 shares, just as with an equity option, and come with strikes and expiration dates that can be entered and exited any time until expiration. As of this writing, CurrencyShares have decent liquidity, especially for the position trader who looks to hold options overnight. For more information on CurrencyShares and options, visit www.etfdb.com or www. nyse.com.
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