PJ Lal's List: Fx training

Currency Options Basics
Source: JP Morgan Chase & Co

OPTION BASICS


The Option Basics section highlights the terminology and definitions in the options market as well as a section on the most frequently asked questions. This overview will give you a solid foundation on the concepts of hedging with options. In addition, we have included a comparison guide of the hedging alternatives available to corporate users to facilitate you in adequately analyzing the pros and cons of each strategy.


The Basic Definitions


Option: The right, but not the obligation, for the holder to buy or sell a certain currency against another, at a certain rate and at/by a certain date in the future.

Call: The right to buy/receive the underlying currency (simultaneously a counter currency put).

Put: The right to sell/deliver the underlying currency (simultaneously a counter currency call).

Strike/Exercise Price: The rate at which currencies are exchanged if the option is exercised.

Exercise: The process by which the right is taken up.

Exercise/Expiry Date: The last date on which the holder of the option may choose to effect the currency transfer at the strike rate. The latest time is usually 10:00 am NY time.

Settlement/Value/Delivery/Maturity Date: Options usually settle for spot value. This is most often the second business day after the exercise date, when funds will transfer.

Premium: Option value - usually payable by the option buyer/holder two business days from the transaction date.

European Style: An option which may be exercised only on expiry date with funds to be transferred on the maturity date.

American Style: An option which may be exercised at any time until expiry with funds to be transferred for spot value from exercise date.

At-the-money forward (spot): An option whose strike is equal to the current forward outright (spot) price.

In-the-money forward (spot): An option whose strike is more favorable to the holder than the current forward outright (spot) price.

Out-of-the-money forward (spot): An option whos

Risk Probability Calculator

February, 2004
By Sure-Fire Forex Trading
http://www.surefire-forex-trading.com

Summary

The "Risk Probability Calculator" (RPC) was designed to work hand in hand with Fibonacci retracement levels. It is therefore important that you have some understanding of how basic Fibonacci works.

First Some History:

Leonardo Fibonacci da Pisa was born around 1170 the son of a city official and merchant. He became a prominent mathematician and is credited with the discovery of what we now call the Fibonacci series.

After a trip to Egypt he published his now famous Liber Abacci (Book of Calculation) in which amongst other things he comes up with the sequence of numbers.

1,1,2,3,5,8,13,21,34,55,89>>On to infinity
If you add one of the numbers in the sequence to the number before it - you get the next number in the sequence e.g. 3+5=8 and so on.

After the first few numbers in the sequence if you measure the ratio of any number to that of the next higher number you get .618 e.g. 34 divided by 55 equals 0.618. The further along the sequence you go the closer to phi you will get.

If you measure the ratio between alternative number you get .382 e.g. 34 divided by 89 = 0.382 and that"s about as far into the explanation as I care to go in this lesson.

The most popular Fibonacci retracement ratios are .382, .500 and .618. We shall also touch on expansion ratios shortly.

How To Use Fibonacci In Your Trading:

In an uptrend measure the distance between point A and point B and in a downtrend measure the distance between point A and point B where point A will always be the lowest recent point in an uptrend and the highest recent point in a downtrend.

In the example below you can see a chart of the daily JPY/USD. Point A is 119.09 and Point B is 123.16. If you calculate the 38.2% retracement you get 121.61, the 50% retracement is 121.13 and the 61.8% retracement is 120.64. For example. The difference between 119.06 and 123.16 is 4.07. If you calculate 38.2% of 4.07 you get 1.55. If you then take 1.55