RhodyTrader

Here's a very simple way to determine whether an option is too pricey, meaning there is too much volatility built in to the price. Figure out what the intrinsic value of the option would be if the price of the underlying stock were to move by 10%. Compare that to the current price of the option. If it's not at least 50% higher, the option is too pricey. Let me break that down a bit. XYZ stock is trading at 51. The 50 Call is currently at 3.50. A 10% increase in the price of XYZ would put the stock at a bit over 56. The intrinsic value of the option - which is stock price minus strike price - would be 6. That would represent an increase in the 50 Calls by 2.50, which is more than 50%. By my personal trading rule, that makes it worth buying. If the option were at something like 5, though, it would be too expensive. To provide parameters for my option trading I don't hold options into their final month and I always trade at-the-money strikes. Naturally, the 50% measure is just a guide. And yes, I realize that the option would actually be worth considerably more than the intrinsic value if the market were to rise 10%. I just use this rule of thumb as a very conservative method of identify option trades with real potential.

You fixed downside is the cost of your options, plus commissions of course. That assumes you are long the options. If you were short, and unhedged you would have an unlimited upside risk. I stick to just buying calls as proxies for long trades in the underlying stocks.

Cable (GBP/USD) tends to be the choppiest of the major currency pairs. That could be why you have success if you favor a reversal type of trading style. The Yen tends to be more trendy.

It's threads like this that scare most people competely away from trading options. It is made to sound like it is incredibly complicated. While that certainly can be the case, it doesn't have to be at all. A while back I completely shifted away from actually trading stocks themselves to using a very simple and straight forward option strategy to position trade stocks. No spreads. No worrying about B-S and getting all tied up in Greeks (and yes, I am very familiar with option pricing models and methods). The options give me a fixed downside and don't use up nearly as much of my capital as holding the stock would.

The data release most likely to have a big impact on the markets in any given cycle is the monthly US Payroll report. Next in line for forex is probably the trade balance figures.

Interesting to hear you call your approach trend trading. I'm not saying that it isn't. After all, there are trends in all timeframes when you think about it - day trading included. It's just that most often trend trading is considered a longer-term sort of thing.

Maybe you aren't refering specifically to the Dollar Index (USDX) here, but rather USD trading in general. If you are, though, I believe the index is trade-weighted, which actually means that the CAD is the biggest part of the equation.

If you think forex is whipped around by news you should watch the fixed income markets. You've never seen anything nearly as crazy as the Bond market when the Payrolls figures come out well away from expectations. Yee-haw! As to JPY, I actually disagree. I think it's easier than most currencies. Stay clear of the GBP in all formats while you're learning. It's very choppy. The EUR is good. AUD tends to move in slow trends. CAD has its moments.

If the stop has to be wide, then your position has to be smaller. It's that simple. If you have a small account and the stop you would use implies too much risk in the trade for a single unit position, then you are better off not taking the trade and waiting for another opportunity. Traders often get fixated on having close stops because they think that means lower risk. That's not true. Closer stops are more likely to get hit by normal market action (noise), which actually makes them more risky.

I agree with Buk. While you should be able to pick up some action in the Yen and the Aussie as Asian trading kicks in, you are definitely going to be outside prime-time for day trading. That certainly doesn't mean you can effectively swing trade, or take longer term positions, though.