Originally Posted by
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To hedge this risk, I've purchased a box option for $55 that pays $94.88 when struck. The end loss of my commerce is set about 144 pips in the entrance, using a position of 6400 USD/CHF, for a potential reduction of $92.16.
The notion here is that when the trade did go against me, I feel it would go relatively fast. If it goes down close to my stop loss in the next week, I will automatically receive $94.88, offsetting my potential reduction of $92.16. If the trade does not go against me, then I stand to make 150 pips * $0.64 = $96. Subtracting the option price ($55) from $96, I have a profit of approximately $41 (and a tiny amount of interest).
Of course, this egy assumes the USD/CHF will proceed one way or another. It could slip into a trading range, which could throw off the entire scenario. In that event, I could buy an option directly in the front of the price action, but still may not make my total loss on the initial option buy.
So that's my trade notion. Please critique, and allow me to know the possible pitfalls of this sort of hedging.