Options for stock investors. A better way to trade.

October 26th Kangaroo Kicker New Trade Alert Australian Dollar Currency ETF – Buy FXA March 68 Call @ 3.80 or less

New Trade Alert for (FXA Australian Dollar Currency ETF)

 

Buy March 68 Call @ 3.80 or less

 

 


Risk Rating: 2     (1 = lowest   5 = highest)

 

Below Break Even Probability: 60%

 

Max Loss Probability: 10%

 


 

 

DOWN under decline

Aussie Dollar has been under pressure with China woes.  A potential snap back from extreme lows puts reward to risk on the side of bullish buyers.

 

 

 

THE DECADE LOW SITS AT $68 FROM 2009.

 

FXA price action since 2015 with $70 to $80 trading range.

 

 

 

 

The March option has over four months for development.

 

A stock substitution strategy using options ties up less capital and has absolutely limited risk to the premium paid. An option instead of buying the shares also has greater staying power for long term trend development.

 

An In-The-Money option gives you the right to be long the shares from a lower strike price and costs much less than the stock itself.

The Options Way: Unlimited Upside Potential with Limited Risk.

A FXA long call option can provide the staying power in a potential larger trend extension.  More importantly, the maximum risk is the premium paid.

 

One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares — that’s the power of leverage.

Choosing an option can sometimes be a daunting task with all of the choices and expiration months.  Simply put, traders want to buy a high probability option that has enough time to be right.

The option strike price is the level at which you have the right to buy without any obligation to do so.  In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for gain or loss.  

There are two rules options traders need to follow to be successful.

Rule One:  Choose an option with 70%-plus probability.  The Delta is a measurement of how well the option reacts to movement in the underlying security.   It is also important to buy options that payoff from only a modest price move.

 

There is no need to ONLY make money on the all but infrequent long shot price explosions.   Good Options can profit from only modest directional moves.

Any stock trade has a fifty/fifty chance of success.  Buying options ITM options increase that probability.  That Delta also approximates the odds that the option will be In The Money at expiration.

 

Buying better options is more expensive, but they are worth it — the chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.  
 
With FXA trading at $70.92, for example, an In The Money $68 strike option currently has $2.90 in real or intrinsic value.  The remainder of any premium is the time value of the option.

Rule Two: Buy more time until expiration than you may need — at least three to six months for the trade to develop.  Time is an investor’s greatest asset when you have completely limited the exposure risks. 

Traders often buy too little time for the trade to develop.  Nothing is more frustrating than being right but only after the option has expired premature to the market move.

 

Trade Setup: I recommend the March FXA $68 Call at $3.80 or less. A close in the below $68 on a weekly basis or the loss of half of the option premium could trigger an exit.

 

An option play also has staying power with the ability to ride through Ups and Downs that would force most stock traders out of the position.  The option also behaves much like the underlying stock with a much less money tied up in the investment.

 

The Delta is 84% for the $68 strike price.  March option has over four months for development.

 

The maximum loss is limited to $380 or less paid per option contract.  The upside, on the other hand, is unlimited.

 

 

The FXE option trade break even is $71.80 at expiration ($68 strike plus $3.80 or less option premium). That is about a dollar above FXA’s current price.

 

 

Essentially, you are long from $68, below the lowest level in the last decade, with over four months of time for ANY bullish development with absolutely limited risk to the $380 paid for the option.

 

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