Scenarios A Forex Options Seller Faces in The Foreign Exchange Market

In Forex options trading, if you have a Forex option in your possession and at the time it expires, its spot strike price is lower than the strike price of the currency’s call option, then your option becomes worthless. The strike price is then said to be “out-of-the-money”. A Forex option in this state is a losing option, and both the buyer and seller of the option have no further obligations to each other.

If you are a Forex option seller, you collect the premium paid by the buyer. In return, you will need to have enough funds to cover your initial margin requirement. It will be advantageous for you if the market moves in your favor, as you will not have to put up more money for the option. It will be to your disadvantage, however, if the market fluctuates, since you hold the risk of assuming an adverse position should the buyer exercise his or her right. You will then be obliged to add more funds to your Forex trading account to bring the balance above the required maintenance margin.

You have two choices as a seller in Forex options trading. You can buy back the option before the contract expires, or hold the option until it expires. Should you opt for the latter, you can take the opposite spot position in the underlying foreign currency should the buyer exercise his or her right to the option. On the other hand, if the option’s strike price happens to be “out-of-the-money”, you can simply keep the premium and let the option expire worthless.

Timothy Stevens is a Forex Options Trader who owns http://www.NonDirectionTrading.com – He has helped hundreds of people on Trading Forex with Options.

He has recently developed a free e-course showing you a step by step process for starting your Forex Trading easier. To learn how to start Forex Trading with Options without wasting your time and losing more money, visit http://www.NonDirectionTrading.com/members/FreeReport.htm