Trading Blogs

What are Options?

Options is a type of trading that allows the investor to buy a contract that gives him the right to buy or sell an asset such a commodity or forex option.

Traditional Options, sometimes referred to as Vanilla Options, have both marked similarities and differences when compared to Binary Options, which are sometimes also known as digital options, fixed return options (FROs) or all or nothing options.

What similarities do they have?

Let’s compare traditional options and the newer binary options. Both Traditional Options and Binaries are different types of derivatives – their price derived from an assets value. They are essentially both contracts that give the trader the right, but not the obligation, to buy or sell an underlying asset – that can be stocks, currencies, indices, bonds and commodities – at a specific price onor before a certain date.

The asset is used both in Traditional Options and Binary trading exists solely as a proxy, as a benchmark for the option itself to determine whether the contract has expired in-the-money or out-of-the-money.

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The dollar remained broadly higher against the other major currencies on Thursday after the Federal Reserve announced plans to start winding back economic stimulus from next month.

USD/JPY was down 0.10% to 104.18 during U.S. morning trade, after rising as high as 104.35 earlier, the highest level since October 2008.

The Federal Reserve announced Wednesday that it would reduce its USD85 billion-a-month bond buying program by USD10 billion in January. In his last press conference as Fed Chairman Ben Bernanke said the economy was continuing to make progress.

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Introduction:

Quite often traders’ especially new traders face a dilemma whether to trade trends or trade ranges. This dilemma not only faces forex traders but also stock traders, futures traders and option traders. However, even though trading trends or ranges requires two different mind sets and two different types of money management strategies, the forex market is ideal for traders to trade both trends and ranges.

Trading Trend or Range:

A trend is defined as a series of higher lows (uptrend) or a series of lower highs (downtrend) as indicated by the arrows on the chart below.

Another method of identifying trends is also indicated on the above chart. Bollinger Bands indicate trends when prices contained in the Bollinger Band and either moving from the lower band to the upper band to indicate an uptrend or moving from the upper band to the lower band to indicate a down trend. Another way of defining a trend is by using a 20 period simple moving average where if prices are above the 20 SMA they are in an uptrend and when prices are below the 20 SMA they are in a down trend.

We are still waiting for the deal between Apple and China Mobile to materialize. Many had hoped for a deal to be reached by Wednesday, but that has yet to happen.

Xi Guohua, the chairman of China Mobile, said that his company had no official announcement regarding the deal with Apple. This has led many to think that the talks between the 2 firms have stalled out. This was after The Wall Street Journal reported that the 2 companies were expected to come to terms around the middle of this week.

Expanding further into China is a high priority for Apple, which has made deals with carriers around the globe to expand its business horizon. China is the second largest market for Apple - behind the United States - and yet it lacks an agreement with one of the country's top carriers, China Mobile. Speculations about the benefits of a deal between the two have been ongoing for years now, but apparently neither side is willing to compromise enough to obtain a deal.

Reuters says, "The most likely stumbling blocks are the exact terms of contracts, including flat and monthly fees, as well as the incorporation of various pricing schemes. Neither side is denying that a deal would bring additional value to the table for both parties."

(AAPL)

In other news regarding Apple, AAPL is down 2.18% on the NasdaqGS. The previous close for Apple stock was 554.99, and today's range is between 541.31 - 550.90.

TECHNICAL ANLYSIS

EUR/USD

Correction of the Euro continues. Nevertheless there is obviously a slowdown in the downward trend. Regardless of that the near term outlook still looks bearish.

USD/JPY

It seems that the trend of the pair has finally become more clear. The trend line along with a channel line could be projected. They both act as resistance on the upside and support on the downside.

GBP/USD

The pair is ranged. It is hard to forecast anything in the short term. But as for a bigger picture, current pattern suggests consolidation. Thus prior bullish trend is likely to resume afterwards.

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Prices seen bouncing from previous lows yesterday but gives back some of the overnight gains as investors trade nervously ahead of the Federal Reserve meeting set to give further guidance on the timing of plans to taper its USD85 billion in monthly asset purchases.

GoLd prices have seen falling in recent sessions on expectations for the Fed to taper on Dec. 18 but, If he will postpone his action we might see a short term rally in the gold price.

When it comes to Gold, good economic numbers like the one we saw in the past 1-2 month are bad numbers for gold. The FED might start to trim its asset purchasing program tomorrow or in January but everyone agrees that the FED easy money policy is about to end.