Options to blame for the moves we’ve just seen
After the event I know but some colour anyway. There was a large barrier in EURGBP at 0.9000 and that was the target for this move. That info hasn’t been out for any length of time because I keep an ear to the ground for such things, as you’ll note from the barriers I list on the options board.
As I mentioned in my last post, there’s still a large expiry in EURGBP at the big figure soperhaps we should expect some further options related moves around the level.
Late news or not, it still doesn’t change the fact that the old intraday S&R levels are back in play once more. GBPUSD failed up at 1.3180.
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Ryan Littlestone as far as I know options are used as barrier There was an 0.9000 (545m) option at 0.9000 as barrier means it will act as resistance so how it could be target ? Above you said that was the target for this move so how it could be target how exactly option works ?
Barriers are different to vanilla options (the usual one’s we post everyday are vanilla unless stated). Vanilla options are in play until the expiry so the winner is the one who has the spot price above or below the options price (strike) at the time of expiry. For example. If the EURGBP options at 0.9000 are ‘Call’ options (the right to buy EURGBP at 0.9000), then the buyer will need the price to be above 0.9000 to make a profit (because he becomes long EURGBP at 0.9000) when it expires. The seller of that option will lose money if the price is above 0.9000 because he becomes the short to the buyer’s long. He only profits if the price is below 0.9000 because he then banks the premium the buyer paid for the option. That’s why we can see a battle in the price around expiry as both sides try to get the spot price in their favour. But, it all depends on how big the expiry is and also how big the individual trades are that make up the expiry. If it’s only one or two trades, then there’s more chance of seeing a battle.
Barrier options are different because they only pay out if the price stays above/below the strike price until expiry (that can be at anytime and we don’t often hear when that is). If the strike price trades (like 0.9000 did today) then the buyer loses and the seller banks the premium, and the option is expired automatically.
If you click the link on the post, you’ll see a detailed explanation my friend.
Thanks Ryan…I am going to read your link “An explanation of Forex options and their impact on currency markets..”.
Oh, and there’s 711m at 0.9000, not 545m 😉