How to Trade Options?
Options are often thought of as difficult to learn requiring numerical ability beyond most people. Actually, options are not difficult to understand once the basic vocabulary is mastered. Only the very advanced options concepts and strategies require any complex mathematics. Access the basic concepts of Options trading here.
Option Types Call Option
A call option gives the buyer the right to buy (go long) a spot currency pair at a specific price on an expiration date. For example, a EUR/USD 1.40 call option expiring on September 15th gives the buyer the right to buy or go long spot EUR/USD @ 1.40 on September 15th. Even if spot EUR/USD goes well past 1.40, the option buyer retains the right to own the underlying spot position at 1.40 on the expiry date. Of course, the option buyer may close the option prior to the expiration.
Put Option
A buyer of a put option has the right to sell (go short) a spot currency pair at a specific price on the expiration date. For example, a EUR/USD 1.39 put option gives the put buyer the right to sell EUR/USD @ 1.39 on the expiry date of the option. Should spot EUR/USD go well below 1.39, the put holder (buyer) still retains the right to go short at 1.39.
Trader Types Option Buyer
The buyer, or holder, of an option can choose to exercise his right and take a position in the underlying spot currency. On the expiration date, the call buyer can exercise his right to buy the underlying spot position and the put holder can exercise his right to sell the underlying spot position. Should the buyer choose to exercise his rights on expiration, he will be assigned a spot position equivalent to the strike price and notional amount. In most cases though, the option buyer does not exercise, but instead offsets the option in the market before expiration, if it has any value.
Option Seller
Option sellers (i.e., those who sell options that they didn't previously own) are also called option writers or grantors. The seller could be a trader or hedger and is contractually obligated to take the opposite spot position if the buyer exercises his right. In return for the premium, the seller assumes the risk of taking a possibly adverse spot position. Puts and calls are separate option contracts; they are not the opposite side of the same transaction. For every put buyer there is a put seller, and for every call buyer there is a call seller. The option buyer pays a premium to the seller in every transaction.
How to Close Options Positions?
In order to close an option position on Prodigy you should open the Position tab in the Order Status window and right click on the position you want to close. You will see a message that asks for your confirmation to close the position at the market. If you agree and click on that message your position will be closed at the market.
Another way to close the position is to execute a trade with the closing amount. For instance, if you are long 100k EURUSD 1.4250 calls 3/18/2010 and you want to close that position you can select the details on the order ticket and sell 100k EURUSD 1.4250 calls 3/18/2010. This will close your open position. When you want to close only part of your open position, say 60k then you should sell only 60k EURUSD 1.4250 calls 3/18/2010 and you will see that the amount on the open position tab will be reduced to 40K.
For Positions that expires the same day you should contact the trade desk and ask for a quote to close the position.
Request for Options Quote?
For trading on non-standard options contracts, a dealing desk member needs to assist you for pricing and execution. The request for a Quote (RFQ) is sent electronically. Once all specifications are selected including; strike, hour, amount, the Request for Quote button needs to be selected. An options specialist will price your request approximately in 30 seconds. At that stage, you can choose to place th order or quit. When there is a problem with the electronic options system, RFQs can also be requested over the phone or from the dealer chat.
Trade via Options Desk
Clients can trade via the Options Desk when they are experiencing a technical difficulty. An agent is accessible 24 hours from either the platform’s chat or from direct tradedesk number: +64 (9) 304-0381. Please do not call the tradedesk numbers for non-trade related issues.
