FOREX OPTIONS

Stocks are so volatile right now that it is hard to say which way they are going except down. I have now traded some new options against foreign currencies. These are called forex options.

On 3/4/2009, I sold three March $63 put contracts for $0.65 and at the same time bought three April $63 put contracts for $1.35. against the Australian dollar FXA. The intent is to watch the March contract evaporate to a value of $0.00 then buy-to-close the April contract to capture the $0.70 spread.

I did this because it appears as if $62 is a level of support and in the next 17 days I doubt that this will be breached. My rationale for this basis is the fact that FXA is non-trending (ADX is below 20) and that the Slow Stochastics is in oversold. Purely a technical trade and could be considered a scalp trade since it is going against the trend of FXA which is down since it is below the 200 day moving average. Click on the image to enlarge it to check out the indicators.

I also traded GLD a few day ago by trading what is called a calendar spread. I expect the price of gold to rise in the next year so I bought a LEAP (Jan. 2011 $100 call) and sold a near month call (Mar. 2009 $100 call). As you can see, this trade will last 21 months. On an every month basis, I want to capture $300 in order to make a small profit. If I can do this over and over, I stand to make money. My rationale for this trade is that GLD is over its 200 day moving average and the overall general outlook for the economy. So it is a mix of technical trading and economic fundamentals. If GLD dips back down to near $85, I am going to buy more 2011 calls at $90 strike.

Good luck trading.

JD