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FX Option Expiry Levels
We have a very quick question from Gatese and Muhammad asking how do we use major FX expiry levels in our trading?
Now, the very first thing to remember is that options are just basically positions being held by future traders. And once the option expiry time is reached, that option either needs to be cashed in, it needs to be realized or it just needs to be left to expire.
RECOMMENDED READING: FX OPTION EXPIRY LEVELS
Now knowing exactly how markets will react at those expiry levels can sometimes be tricky as we never really know exactly whether the position sitting at those levels are puts or calls and whether they will trigger any real specific orders at those levels.
Now the only thing that we really know is that there is substantial orders sitting at that specific area and that we might have a reaction before or at the expiry time. Now something that we can sometimes observe is that prices tend to act as a magnet towards very big option expiry levels.
Let’s say, expiry levels above a billion and upwards. So because the expiry level can act as a magnet, that can be useful info if you are holding onto a trade and price starts to move closer to that level.
So for example, we are holding a bullish buyers on the Aussie-Yen and if we see a major option expiry level of let’s say, four billion sitting at the 66 level, we can expect the price in some instances to act as a magnet in the run up to that option expiry level. And if the option expiry is big enough, it might mean that the price might not really move very far away from that level until that actual expiry takes place.
Now the important thing to realize is that option expiry level shouldn’t really be used as a basis for taking any trades. It should only be used as an additional analysis tool saying, that okay, I see that there’s four billion optional sitting at this level. It’s something to be aware of but, it should never stop you from taking or closing out any trades if the sentiment or the fundamentals tells you to do so.
So it’s just a valuable tool of knowing that okay, there’s a lot of potential orders sitting at that level in terms of options, but it shouldn’t really ever change your mind on how you should place trades or stop yourself out of trades, if the sentiment and the fundamentals point to you doing so. So I hope that helps you guys out there, on how to use option expiry levels in your trading.