thread: Order Flow - Achieving the mindset

66950

Carnegie,

Glad you noticed that roughly all of the currency pairs being exactly the same. Now think about how this information could be capitalized on by you alone.

I'll give you a clue, if one correlated pair goes first before the other then we could expect what the other pair may do!

Or if the Dollar makes new highs and the EUR/USD hasn't traded yet then it may have to ch up!

Hope this gives you some ideas.

James.

Well I trade these correlations daily and its not that much easy.

I'll give you a clue, if one correlated pair goes first before the other then we could expect what the other pair may do!

Other pair may chup,.... Or as soon as the first one stops moving up the lagged one can begin falling like a stone.

Or if the Dollar makes new highs and the EUR/USD hasn't traded lower yet then it may have to ch up!

Again it could also mean that there has to be some thing wrong* with EurUsd and its just waiting for Dollar to prevent and than proceed to the upside.


*we will always find that out on Bloomberg etc than we are several 100 pips late, But imagine if some folks know about it before hand and they might be causing that Divergence on our own charts by loading up.

For an illustration open up the 4H charts of GbpUsd and EurUsd and see what happened between 18-JAN into 25-JAN. It was the Rating downgrade on 25-JAN if I remember correctly. 230 pips not ehh?

I visit these kinda Divg's 4-6 times each week but knowing the result isn't so much easy or simple every time and this is what I am working on those days


.

108183Nasir,

Thanks for the points above. I realise these events do not occur that often but I'm sure when we took enough time studying the events which are causung those inefficiencies then it might be possible to make them a bit more likely than hit or miss.

Additionally, I must give credit as these ideas were given to me by Unamed-playr.

At the moment I'm busy considering how value places tend to modify amongst correlated pairs that can sometimes predict a move but more about that later.

James.

66950Hey men,

Sitting on OANDA 5 min and IFR actually make you confused, I think at some point I need to learn how to split decent news (those who influence the market) and bad news (people who are priced in and don't influence ).

Now what I had been asking for is your question about alternative play/hunting.
What is with all of these various alternatives?

I read a little bit about barrier choices and it seems as if the price goes above the price of the option, it is a reduction for the one who purchased it.

Let us say there's a barrier option round EURUSD 1.35. If the price moves over it only such as it won't be helpful to the one who purchased it correctly? But why can the market care of it? Why is it in the participants' interest if the option matures or not?
It's not like you can use it to ditch your stock inside right? Because makes some sense, you ditch the stock in the buy/sell stops there but I actually can't understand the significance with entering the zone of barrier alternatives and/or vanillas or whatever option it is.

this query actually goes deeper although I really, really don't have any time due to really much to do in college, and in all honesty I am actually thinking about quitting uni and getting a job rather, it's taking too much time sitting with the dumb assignments while I could do other things that would benefit me more!!

Take care

66950Hey Carnegie,

I am currently looking for ways to divert myself from my Maths assignment, also let's just say you have provided an means to an end.

the majority of the options that are quoted on IFR are european style options. This means that they expire at a particular time interval. With a little bit of digging around here, you can actually locate the time of all the options.

So envision things together with your order flow mentality.

Options will mean different things to different people. For the like and hedge funds, it'll be a car; for corporations it will be utilised to cancel foreign exchange risk. For the underwriters of the options, such as commercial banks, (who are higher up in the sway and data chain) in the event the option expires in the cash, they will eliminate money, having to pay it to the options holders who will exercise the option to their benefit. If the option expires worthless, the options underwriters will make money in the kind of commissions/options premiums etc..

Now when the position of the option barrier/strike price is divulged, think of who this could benefit the most. We know that the holders of this option is going to want to keep their option above/below the target price as essential, while it'll be advantageous to the options underwriters to induce price through and beyond.

Think of the different impliions this has, as well as the manners in which you can go about exploiting this, notably by equipping yourself with all the more probable result.

Regards,

66950

Hey men,

Sitting on OANDA 5 minutes and IFR really make you confused, I believe at some point I must learn how to split decent news (those who affect the market) and bad news (those who are priced in and don't affect).

Now what I was asking for is the question about alternative play/hunting.
What's with all of these various choices?

I read just a little bit about barrier choices and it seems as if the price moves above the price of the option, it's a reduction for the one who purchased it.

Let's say there's a barrier option around EURUSD 1.35....

From what I believe is that for an exmpl, u are trading near 1.3450 and have a barrier in 1.3500 so there could be sell orders around 1.3490 and compared to people who put these orders also set Stops for all these orders @ 1.3520.

So first u push those Sell order's and break through the barrier than u can liquidate on that point ceases.
.

66950

Hey,

I'm currently looking for ways to distract myself from my Maths mission, and well let's just say you have provided an means to an end.

the majority of the options which are quoted on IFR are european style options. This means that they expire at a certain time period. With a little bit of digging around here, you can really find the precise period of expiry of the options.

So imagine things with your order flow mentality.

Options will mean unique things to different people. For...

Hmm. . So the corporations aren't losing, since they aren't in the sport for profit but for reasons. The only one bearing a risk here's the bank.

It had been apparent to me from the start that SOMEONE want's to break the option by driving price . But this was my thinking:

why be the underwriter if you still must cover breaking the option? That might sound a little wierd but here is my thinking:
Let us say a bank is the underwriter to a company of a substitute exercising at 1.3500.
If price remains below 1.35; the bank must swap $100 mil GBP for USD.
If price gets above 1.35; corporation falls and the bank gets the premium.
Now figure price is currently at 1.33. Is not there a price for the bank to drive price up 200 pips just to knock the option ? Yes I know that $100 mil was a terrible example and it ought to be a couple of yards atleast but that is not my purpose.

Take care

EDIT/
My order flow mentality is telling me the BIAS on the special currency and game concept has something to do with which hunting it's on each particular option. .
Must consider this one, perhaps I need to read up a bit on options.

EDIT 2/
I had been thinking about something. .

Now when the position of the option barrier/strike price is divulged, consider who this could benefit the most. We know that the holders of the option will want to keep their option above/below the target price as essential, while it will be advantageous to the options underwriters to drive price through and beyond it.

To me the benefit is obvious. . Ten times out of ten would the bank hunt for the option but that would not be the case in real life. Also if we make the assumption that companies aren't in the match to get FX profit then how come we could sometimes see a protection of the option? That means there are participants in the options, sometimes insecure; involving two banks. . Hence the question needs to be, how do we know if it is between two banks (i.e. being a struggle ) or between a bank and a company (hunting the alternative )

66950Guys, vanilla choices (possibly european or american style) are rigorously pricing in the future expected VOLATILTY, maybe not PRICE. Read this. It doesn't matter what price the underlier will have in the long run, just it is going to be. In case the underlier is significantly more volatile than suggested from the market, the option buyer will triumph. When it's less volatile, the buyer will lose. Prospective PRICE isn't a factor in determining who wins.

This is due to a peculiarity in the option market structure. In general there are much more option buyers (long volatility) than sellers (short volatility), thus the banks (which usually selling volatility) are getting problems matching the short sides of choices - their short book is much larger than the lengthy book. To market themselves they do some thing called delta hedging. This hedges the PRICE away, and the VOLATILITY stays.

Note that you can not match puts and calls in precisely the same strike as many would believe. They are equivalent as a result of put-call parity, thus you can not offset one .

As I saidthis is just for vanilla options, but it is important to comprehend this notion, that choices are pricing in VOLATILITY.

For hurdles it is more complied.

66950My thinking is that the Bank who is the underwriter is not the person who will orchee. As the bank has divulged the data gamers may use it in order to speculate regarding the movements of their currency, and might help alyze the transfer to the stops that the Bank is not the mover in the exercise.

We must also think about the reasons of different participants - state you're a large institutional participant, and your current outlook for the currency pair is really a downtrend, which ought to continue according to a analysis of this fundamental climate.

Say that the choices barrier to be removed lies in a greater price than what is currently being offered now. The egy employed from these large institutional players, would be to build up positions in intervals, gradually scaling to the tendency, and consequently it would also be favorable for them to enter new positions as the dust settles down from these option plays, and the currency continues to move back in the downtrend. And of course that the liquidity would make entering close to the barrier profitable from a cost perspective, for the fact that the liquidity will permit the institutional participant to obtain a fantastic average fill, with very little market impact.

However, as you noted there are costs involved, which is why you do not see choices underwriters recklessly gunning for stops. It is inclined to be done when price occurs to end up close to the strike price close to the options expiry date. The transfer upward has been initiated at periods of low liquidity that it's cheaper to make jumps in price, in addition to lure technical/momentum/informed traders to jump on board. The amount of money at stake can be something to take note of - look at price gravitates towards a barrier when amounts such as 350Mio-500Mio are at stake.

It's not something that happens all the time, nor will we guess exactly who is battling - to as you mentioned previously, we're working with probabilities. Depending upon that situation a positive expectancy system can be built, and that's all you want to create bank.

Hope this helps,

66950

Guys, vanilla choices (possibly european or american style) are rigorously pricing later on expected VOLATILTY, not PRICE. Read that again. It doesn't matter what price the underlier will possess in the future, just it's going to be. In case the underlier is more volatile than suggested by the market, the option buyer will triumph. If it's less volatile, then the buyer will likely lose. Future PRICE isn't a element in determining who wins.

This is a result of a peculiarity in the option market arrangement. In general there are much more option buyers...

This new information leads me to believe there are some gaps in my knowledge.

Are you ready to disclose additional details about the workings of alternatives? If not then I completely understand - no hard feelings.

Regards,

66950

This new information leads me to believe there are some gaps in my knowledge.

Are you ready to disclose additional details on the workings of alternatives? If not then I completely understand - no hard feelings.

Regards,
xXTrizzleXx

What I said are option basics. No key there As always, the key is in being one step ahead of the market.

I'm not a terrific teacher, so I searched for some explanations of what I said. Here's what I discovered. You can find better ones.

Http://www.eurekahedge.com/news/16_j...ty_Trading.asp

In contrast to the comparative volatility disperse egy, in gamma trading egy, one is predominantly gambling the implicit volatility of an option does not agree with all the expected volatility as seen in an absolute point of view. Quite simply 8211; one stakes on the absolute reversal. If a person utilizes the gamma trading egy, the aim is a large profit if unexpected external shocks occur, eg elections, terrorist attacks and astrophes. On the other hand, Together with the brief gamma trading egy, one is gambling on more quiet waves, or even better still, no waves. In the case of both volatility egies, market direction plays a subordinate role, or sometimes, no position.

Wikipedia is also useful, as always:http://en.wikipedia.org/wiki/Volatility_arbitrage

To an option trader engaging in volatility arbitrage, an option contract is a way to speculate in the volatility of the inherent instead of a directional bet on the underlier's price. If a trader buys choices as part of a delta-neutral portfolio, he's reportedly volatility. If choices are sold by him, he's said to be short volatility. As long as the trading is completed delta-neutral, buying an option is a bet that the future of the underlier realized while promoting an option is a bet that future realized volatility will likely be reduced volatility will be high. Because of put call parity, it isn't important whether the choices traded are calls or puts. This can be true because put-call parity posits a risk neutral equivalence connection between a call, a put and some amount of the underlier. Therefore, being long a delta neutral call results in exactly the very same yields as a delta neutral put.

There was a paper which explained really nice why choices are pricing largely volatility (because of the highly asymmetric market I discussed in the previous article ), but I can not locate it understand.