[The FX Power Course Staff]

This type of option is perfect for traders who anticipate a retracement and believe that the price of a given currency will test a support/resistance level. The one-touch option is an option that becomes profitable if the barrier level is breached prior to expiration. A barrier is selected, either above or below the spot rate, which you expect to be breached before the expiration of the option. The trader purchases the option for a premium and if the underlying pair’s spot rate breaches the chosen barrier even once before the option’s expiration, they receive a predetermined payoff. The option is priced according to the probability that the spot rate will move through the barrier before the expiration.

What am I risking?
The maximum risk is limited to the premium paid for the option.

What can I earn?
Your payoff is the predetermined amount that you specify prior to purchasing the option.

What is my breakeven point?
There is no breakeven for a one-touch option. If the spot rate never reaches the barrier, the premium is lost. If the barrier is breached, even once, the payoff is received.


An example of a One-Touch option is the following:

Currency: GBP/USD
Barrier Level: 1.7650
Current Spot Level: 1.7870
Expiration date: 1 week
Payoff: $10,000
Cost: $4,808
Profit if Barrier is reached: $5,192


Profitable Scenario – Barrier touched prior to expiry, therefore this option is profitable

Unprofitable Scenario – Barrier never touched, therefore no payoff at expiry

[Student]

I don't have much time to follow the market but I am usually right about the direction of my trades, however, I tend to get stopped out more often than not. Do you think these one touch options would be beneficial to me?

[The FX Power Course Staff]

Originally Posted by Student

I don't have much time to follow the market but I am usually right about the direction of my trades, however, I tend to get stopped out more often than not. Do you think these one touch options would be beneficial to me?

Great question. The one touch sounds like a great option for you to use. It will allow you to pick the direction and a price target and you won't have to worry about getting stopped out or watching the market for hours on end.

[Student]

Can you please give me an example of how I might use a 1 touch option as a technical trader?

[The FX Power Course Staff]

Originally Posted by Student

Can you please give me an example of how I might use a 1 touch option as a technical trader?

Sure. In the chart below, it appears that the GBP/USD is headed lower and the next major level of support is at 1.7200. We could buy a one touch option with a strike price of 1.7200. This will allow us to have an opinion and a position without having to watch the market for hours or days and we also won't have to worry about proper stop placement or getting stopped out.

[Student]

I am new to trading but have noticed extreme volatility during NFP reports. I tried trading this report several months in a row and got stopped out on every attempt. Can I use 1 touch options to try and take advantage of the volatility related to the NFP release?

[The FX Power Course Staff]

Originally Posted by Student

I am new to trading but have noticed extreme volatility during NFP reports. I tried trading this report several months in a row and got stopped out on every attempt. Can I use 1 touch options to try and take advantage of the volatility related to the NFP release?

Actually, using 1 touch options to take advantage of volatility is a great idea and can be very effective. For example, if the current price is at 1.2000 and we have major support at 1.2000 and major resistance at 1.1800, respectively, we could look to purchase a 1 touch at 1.2200 and another 1 touch at 1.1800. With strike prices roughly 200 pips from the current price, we would be able to purchase options with low premiums and have the potential to collect large gains if the strike prices are hit before expiration.