Trading Stock Options with the Euro

BATS:FXE   Invesco CurrencyShares Euro Currency Trust

CurrencyShares Euro Trust ( FXE )

Fund Summary

The investment seeks to track the price of the Euro , net of trust expenses. The fund seeks to reflect the price of the Euro . The sponsor believes that, for many investors, the shares represent a cost-effective investment relative to traditional means of investing in the foreign exchange market.

*For Tuesday Nov. 27 (if Eur/Usd is trading below 1.28)
I am biased long on the Eur/Usd trade. I also want to play options to increase my gains and minimize my risk. Three ways to do that is to sell out-of-the-money put options, buy in-the-money put options and buy deep out-of-the-money call options.

Selling options is another way to profit from option trading. The basic idea behind the option selling strategy is to hope that the options you sold expire worthless so that you can pocket the premiums as profits.

The upward movement from the Nov. 13 Eur/Usd bottom should consolidate at this point and most likely move slowly north. One way to play sideways with a bullish emphasis is to sell near expiration (Dec. 2012) deep out-of-the-money puts. FXE currenlty trades at 127.32. Options on 124.00 Dec. puts last sold for .17 per contract (100 shares per contract). I would like to sell these options to close for .20 a contract. The strategy would be to close the position as the underlying moves higher or consolidates and I gain on the premium. The only way I lose on these contracts is if the Eur/Usd trade moves much lower on a short term basis. I can close this position at any time and do not have to hold through expiration.

The next strategy comes with less profit, but is the safest trade. Selling in-the-money puts. Currenlty the 129 Jan. Puts sell for 2.58 per contract. If the price the underlying stays steady I do not make as much money on this position, but I do make a profit. I do however, rake the premium if FXE trades closer to 129 or above. If the price of the Eur/Usd nears 130.00 the premium on the put options would decrease and I could close the position for a big profit.

For Nov. 28-29
The last option is risky. Buying out-of-the-money Calls. In this case we need the Eur/Usd to trade higher in a short time frame to maximize gains. You want to get as close to your predicted price point as possible, and still remain out-of-the-money. You also want to give yourself some time to make sure you can fullfill your price strategy. I am looking at the 131 Dec. Calls that sell for .08 a contract (100 shares per contract). As the Eur/Usd moves closer to 130.00 I will sell these options for a profit, hopefully more than .50 per contract.


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