How to capture volatility in Currencies with options...

One of the things that can be so frustrating about trading currencies is that they can be very random and unpredictable in shorter timeframes, such that even if your thesis regarding the direction of said currency can be correct, you may still get tagged out on choppy movements. This has happened to me more times than I care to count.

On currency trading platforms, one way to be directionally neutral is to find a ranging currency, and place entry orders above and below the range in the hopes of catching a breakout or breakdown. One problem, that I have found the times that I have attempted this, is that I will catch the breakout, watch as the price action drops down to tag my stop and carry on the anticipated direction.

Catching up to the present...  Lately, I have been doing quite well trading Reverse Iron Condors on volatile options. This has caused me, when I have time, to search for securities that are volatile.

Epiphany time. Currencies are volatile.

As a small time trader, I have not had the ability or means to enter the futures markets with a platform that allows me to take positions with options on currencies. Enter the CurrencyShares ETF's.

On my E-trade, I have spent the last week going over the viability of the different Currencies that are offered by CurrencyShares as ETF's and here is what I've found:

FXE, FXB and FXY seem to be the best candidates. Some of the others are interesting volatility wise, but will not work for RIC's.

FXA, for example, looks good on the surface volatility wise in the sense that you might get the required movement pretty easily, with a fair entry price vs. ROI. I just don't like the lack of volume.

Same with FXF and FXS. No volume to speak of in the options. FXCH and FXSG have no options at all.

So here's the trade. I am entering the 130c/131c/128p/127p Reverse Iron Condor expiring on April 20 for $.43

 



If I get filled for $.43 I will put conditional orders on each leg to close at $.85, or close to 40% ROI if the trade succeeds.

One of the good things I've noticed is that with other securities or weekly options, spreads this close have an entry price of $.55 or higher for 8 sessions worth of time. This trade has 10 full days of trading time for less than $.45.

I'll post how it turns out, as I may to this monthly, or will be adding FXB, or FXJ if the economic calendar of news so dictates.

As always, post any questions or comments you may have. I will be making an effort to post my trades and results on Twitter, so follow me @B50cal1978 for the latest.

Also, what I do is for the purposes of stimulating conversation, and the exchange of information and is not a recommendation in anyway to enter into any trade of any security mentioned.

May the profits always find you,
STT