Zoe Fiddes, Head of Sales at ORE, which is an OTC FX, precious metal and commodity option solutions provider for retail brokers and banks, takes a close look at the dichotomy between the impending responsibility which Greece has to begin to meet its commitments at the end of this month, and the considerations which currency traders face with regard to potential outcome.
Taking a look at FX options, Ms. Fiddes provides her perspective in this Guest Editorial.
On June 30th Greece must repay €1.6bn ($1.8Bn) to the International Monetary Fund (IMF). Currently Greece does not have enough funds to make payment and is relying on emergency funding from the European Central Bank (ECB). However, European leaders will not release funds until an agreement on Greece’s austerity measures has been made. Austerity measures include new taxes on businesses and the wealthy, VAT increases and savings on pensions.
The Greek government is looking for relief on austerity terms and see EU leaders as being ‘tough on austerity’. Whilst all attempts at reaching a deal have been hampered, euro currency price action has been heating up. Commentary and analysis changes daily; one-day the market is elated on news that a deal is close, only to hear later that the meeting ended badly.
Last night there was some degree of a ‘step in the right direction’ becoming evident, and it was said that key obstacles are being gradually cleared. However, the Greek parliament has not accepted the ‘offer’ yet and if they don’t it could get messy.
Investors are not convinced by the current situation and we have seen euro weaken across the board; overnight during the Asia session, EUR/USD was in free-fall from 1.13s to the 1.12s and further momentum, as the EU market opened, pushed the pair lower. EUR/USD now trades at 1.1160.
On Wednesday June 24th, a fresh round of Euro-group meetings will take place their target is to reach a final agreement. If a deal is made the euro may regain its lost ground but if there is no sign of a positive outcome then the euro may weaken further.
Trading in a volatile market environment involves understanding your level of risk. There are different ways to trade EUR/USD activity. You may take a short-term position through buying or selling EUR/USD directly in the market and managing risk using a stop-loss order.
It is possible to buy EUR/USD options which involve limited risk without having to use a stop-loss order. The latter may be useful in volatile markets since you avoid getting stopped-out and you know your maximum investment size at the point of entering the trade.
The following are EUR/USD option trade examples to trade an UPTREND, DOWNTREND or increase in volatility.
Through buying a Call option you can take advantage of an UPTREND with limited loss. As the market goes UP the related Call option’s value rises.
For example, the image below shows a EUR/USD Call option traded from the optionsReasy platform. The option has expiry date July 1st (8 days), for amount 10,000 EUR and strike rate 1.1200. As EUR/USD rate moves UP and above 1.1200, the option’s value rises (note that EUR/USD is currently trading at 1.1160).
This is a Guest Editorial which was compiled by, and represents the viewpoint of Zoe Fiddes, Head of Sales at ORE.