I have noticed that recently one of my dealers start offering daily FX options on the AUD/USD pair. The options expire every day at 8pm UK. The interesting part is that the spread is very low in my opinion 3-5 pips.

Does anybody have any trading strategies suggestion that would benefit by this low spread and the limited risk of the options? I know that the time frame is not great but as I am typing this message an AUD/USD ATM 6450 option is 40pips with 6.5 hours before expiration and the New York session has only just begun. Lately this pair moves a lot during the American trading session.

Which dealer offers it? I am also interested in it.

Can you give the details please?

The deleveraging of carry trade is going on. So it is not easy for Aus$ to rise continuously as investors are waiting for it to appreciate so that they can sell it.

your strategy should take into account this factor. If you are bullish on Aud then buy call (limited risk) and sell put (unlimited risk). If bearish vice versa.

Hi PJ,

The dealer is IGMarkets. Be careful because after a 6 week "beginner period" the minimum trading size for their daily options is 100K.

I am pretty familiar with options and some options strategies. I was hoping that some of the more experienced trader might point me in the right direction to benefit from such a low spread (something like strangles, butterflies, condors, etc.)

I was looking more towards a neutral position that benefits from the high volatility in the American trading session.

Thanks for the information. IGMarkets spreads normally are quite wide.

I have been trading options for last 5 years and my experience tells me that stock market-style option strategies don't work for forex except for the educators and trainers who want to make a buck out of doling out such strategies. Directional views and straddles during range trading have worked for me. If any real trader (not trainers) can share their experience about these fanciful strategies we all will be happy to learn from them.

Long strangles and straddles may be one alternative you could take advantage of. Low trading costs help this strategy's profitability a lot. However, 40 pips in 6 hours seems pretty high time value to me. I think time value may be tough to overcome. I am looking at Theta at some exchange traded ATM versions right now and it is at 19 pips per day not 40. I am beginning to think that the real problem here is time value melt more than anything. However, can you sell these? If they can be sold, I would definitely consider that.

Hi John,
I realize that 40pips for 6 hours is not a very good deal. On the other hand, my "beginner mindset" makes it hard for me to sell these options when there is so much volatility in the market and when this pair moves 200-300 pips a day on regular basis. I might try some covered calls or puts.