Trade example

On Oct. 18, 2004, a currency trader who noticed the EuroFX had been in a range between roughly 1.2450 and 1.2250 for a few weeks and believed the economic releases of the next two weeks would cause the euro to break out of this range could have created the following position: a long strangle in weekly options, purchasing the Friday expiring (Oct. 29) 1.2300 puts and 1.2500 calls for a combined 98 ticks($1,225). Breakeven at expiration would be above 1.2598 or below 1.2202, not including commission and fees.

The slight upside bias to the strike prices reflects the previous day’s bullish move up to 1.2500.

The cost difference between these weekly expiring options and the monthly options that expire in the first week of November would be considerable. A trader wanting to buy the monthly November 1.2500 calls and the 1.2300 puts would have to pay a combined cost of 143 ticks ($1,787.50). Breakeven at expiration would be 1.2643 or 1.2157, not including commission and fees. If you believed the employment report was going to move the market within the next day but were unsure about the next three weeks, there would be no reason to pay for the added time value of the November options.

For short-term traders who want to trade imminent market events, weekly currency future options provide the opportunity to buy options cheaper and more accurately target specific time windows.