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BULLISH OPTIONS STRATEGIES 2
WELCOME TO FXDD’S BULLISH OPTIONS STRATEGY GUIDE
INTRODUCTION
A bullish options strategy is one of the most common starting points for options trading beginners. Bullish options strategies are designed to correlate profi t with an increase in exchange rate. Because stock traders are familiar with this direct correlation, they feel comfortable using bullish options strategies when transitioning to options trading.
Buying a call option is the simplest bullish options strategy to use when aiming to profi t from an upward trending price movement. Nevertheless, FX options offer some of the most versatile trading instruments in the world today. A combination of different options can additionally allow you to also limit your losses, lower your initial outlay, increase your chances of profi t and even profi t when the underlying price remains stagnant. These are collectively known as bullish options strategies.
This guide will detail a full list of bullish options strategies while discussing their mechanisms and the reasons they work. These strategies can be helpful ways to invest or leverage existing positions for traders with a bullish market sentiment.
The information contained within is purely for education purposes and must not be construed as to indicate any kind of investment advice.
HIGH RISK WARNING: Before you decide to trade either foreign currency (“Forex”) or options, carefully consider your investment objectives, experience level and risk tolerance. Over-the-counter leveraged Forex spot trading (“spot trading”) and options trading (“options trading”) both carry high levels of risk that may not be suitable for all investors. Educate yourself on the risks associated with spot trading and options trading, and seek advice from an independent fi nancial or tax advisor if you have any questions. With spot trading, you could lose some or all of your initial investment; do not invest money that you cannot afford to lose. Leverage, offered as a part of spot trading, creates additional risk and loss exposure. With options trading, you could not only lose all of your initial investment, but the potential to lose money is potentially unlimited when you write an option. Purchasers and sellers of Forex options should familiarize themselves with the type of option (i.e., put or call) that they contemplate trading and the associated risks. You should calculate the extent to which the value of the options must increase for your position to become profi table, taking into account the premium paid, other transaction costs, if any, and the rate of premium/time decay.
BULLISH OPTIONS STRATEGIES 3
BEFORE YOU GET STARTED
Practice Accounts
Test these strategies risk free with an FXDD Options Trader demo. Register now for your free practice account at www.fxdd.com/mt.
FXDD Options Trader
· Completely customizable
· Downloadable or Web-based
· Built-in strategy optimizer
· Risk manager simulator
· Trade spot FX or FX options
Visit our YouTube channel for platform tutorials and basic education.
Watch videos: www.youtube.com/fxddglobal
BULLISH OPTIONS STRATEGIES 4
COVERED CALL
DESCRIPTION & TIPS
This strategy consists of buying (or being long) the underlying and writing call options in the equivalent amount. The short call pays for a small downside “cushion” in the event the underlying currency depreciates. MAX GAIN: Strike Price -
Spot Entry Rate + Premium Received
MAX LOSS: Unlimited
DIFFICULTY: Beginner
OUTLOOK: Bullish
RISK LEVEL: High
EXAMPLE: Buy EUR/USD @ 1.35Sell Call @ 1.38
BULLISH OPTIONS STRATEGIES 5
NAKED PUT
DESCRIPTION & TIPS
This strategy consists of being short a put.
MAX GAIN: Premium Received
MAX LOSS: Unlimited
DIFFICULTY: Beginner
OUTLOOK: Bullish
RISK LEVEL: High
EXAMPLE: Sell Put @ 1.35
BULLISH OPTIONS STRATEGIES 6
LONG CALL
DESCRIPTION & TIPS
This strategy consists of buying a call.
MAX GAIN: Unlimited
MAX LOSS: Premium Paid
DIFFICULTY: Beginner
OUTLOOK: Bullish
RISK LEVEL: Low
EXAMPLE: Buy Call @ 1.35
BULLISH OPTIONS STRATEGIES 7
LONG HEDGE
DESCRIPTION & TIPS
This strategy consists of being long the underlying and buying a put.
MAX GAIN: Market Rate -Spot Entry Rate - Premium Paid
MAX LOSS: Spot Entry Rate - Put Strike + Net Premium Paid
DIFFICULTY: Beginner
OUTLOOK: Bullish
RISK LEVEL: Medium
EXAMPLE: Buy EUR/USD @ 1.35Buy Put @ 1.34
BULLISH OPTIONS STRATEGIES 8
BULL CALL SPREAD
DESCRIPTION & TIPS
This strategy contains two calls with the same expiration but different strikes. The strike price of the short call is above the strike price of the long call. This strategy is a net debit spread.
MAX GAIN: High Strike -Low Strike - Net Premium Paid
MAX LOSS: Net Premium Paid
DIFFICULTY: Intermediate
OUTLOOK: Bullish
RISK LEVEL: Low
EXAMPLE:Sell Call @ 1.375Buy Call @ 1.35
BULLISH OPTIONS STRATEGIES 9
LONG CALL CALENDAR SPREAD
DESCRIPTION & TIPS
This strategy consists of being short a call at the near month and long a call at the far month. These options use the same strike prices. With this strategy, the trader is looking for a price decline for the near month and then a price increase during the life of the far-term option.
MAX GAIN: Unlimited
MAX LOSS: Net Premium Paid
DIFFICULTY: Intermediate
OUTLOOK: Bullish
RISK LEVEL: Low
EXAMPLE:Sell March Call @ 1.35Buy April Call @ 1.35
BULLISH OPTIONS STRATEGIES 10
BULL PUT SPREAD
DESCRIPTION & TIPS
This strategy contains two puts with the same expiration but different strikes. The strike price of the short put is higher than the strike price of the long put. This strategy is a net credit spread.
MAX GAIN: Net Premium Received
MAX LOSS: High Strike -Low Strike - Net Premium Received
DIFFICULTY: Intermediate
OUTLOOK: Bullish
RISK LEVEL: Medium
EXAMPLE:Sell Put @ 1.35Buy Put @ 1.33
BULLISH OPTIONS STRATEGIES 11
LONG RATIO CALL SPREAD
DESCRIPTION & TIPS
This strategy consists of being short one call and long two calls of the same expiration but with a higher strike. This strategy is generally used when looking for a sharp bullish move in price or an increase in volatility. MAX GAIN: Unlimited
MAX LOSS: High Strike -Low Strike - Net Premium Paid
DIFFICULTY: Intermediate
OUTLOOK: Bullish
RISK LEVEL: Medium
EXAMPLE:Sell Call @ 1.35Buy Two Calls @ 1.36
BULLISH OPTIONS STRATEGIES 12
BULL SPREAD SPREAD
DESCRIPTION & TIPS
This strategy is the combination of a bull call spread and a bull put spread. All options must be the same expiration. Typically, the call strikes are above and the put strikes are below the current level of the underlying pair. A key part of the strategy is to initiate the position at even money, so the cost of the call spread should be offset by the proceeds from the put spread.
MAX GAIN: High Call Strike -Low Call Strike - Net Premium Paid
MAX LOSS: High Put Strike -Low Put Strike + Net Premium Paid
DIFFICULTY: Advanced
OUTLOOK: Bullish
RISK LEVEL: Medium
EXAMPLE: Sell Call @ 1.36Buy Call @ 1.35
Sell Put @ 1.33Buy Put @ 1.32
(EUR @ 1.34)
BULLISH OPTIONS STRATEGIES 13
COVERED RATIO SPREAD
DESCRIPTION & TIPS
This strategy consists of being long the underlying, short two calls of one strike and long a call of a higher strike. All the options must be of the same expiration.
MAX GAIN: Lower Call Strike -Spot + Net Premium Received
MAX LOSS: Unlimited
DIFFICULTY: Advanced
OUTLOOK: Bullish
RISK LEVEL: High
EXAMPLE:Buy EUR/USD @ 1.33Sell Two Calls @ 1.35
Buy Call @ 1.36
BULLISH OPTIONS STRATEGIES 14
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