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.
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