A Primer on Options

An option is the right to buy or sell the underlying currency at a specific price for a specified period of time. You can purchase an option or write an option. For speculative purposes, purchasing is most common.

The right to buy is a call. You have the right to call the position away from someone holding the spot equivalent.

The right to sell is a put. You have the right to put a spot position to someone.

You purchase a call if you believe the currency price is headed up.
You purchase a put if you believe the currency price is headed down. An option is a contract between a buyer and a seller; the seller is termed the writer, the buyer is the purchaser. The writer captures the cost the purchaser has paid for the option. Writing is generally a means to gain income off a long-term position you are willing to close if the option is called away from you or put to you.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2016. Content published with author's permission.

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