Last Trade Date Trading ceases at Eastern time two days prior to settlement see next entry. Final Settlement The US Dollar Index is physically settled on the third Wednesday of the expiration month against six component currencies euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc in their respective percentage weights in the Index. Settlement rates may be quoted to three decimal places. Position Limits The DX contract has no position limits. Dollar Facts U.
Traders can buy call options or open a bull option spread if they think the Index will rise. If it appears that it will fall, traders can buy put options or open a bear option spread.
Sometimes the U. Dollar Index trades in a narrow range. When that happens, traders can use a straddle option strategy to take advantage of an upward or downward price breakout.
Dollar often ask themselves whether price fluctuations are due to a revaluation of the foreign currency or to a general shift in the value of the Dollar. To make this question easier for traders to answer, exchanges and the Federal Reserve Bank have come up with two indices that reflect the value of the U. Dollar compared to a basket of other currencies. In both cases, these baskets are made up of many of the major trading partners of the United States. Download the short printable PDF version summarizing the key points of this lesson….
You buy a call if you think the U. Your risk is limited to whatever you paid for the option.
For example, if the U. To enter a bull call spread, the trader buys an in-the-money call option and sells an out-of-the-money call option.
Updated Dec 28, What Is the U. The U. This index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies. The index was established shortly after the Bretton Woods Agreement dissolved in with a base ofand values since then are relative to this base. Understanding the U.
When you sell the call option, the option premium offsets the cost of the call option you buy. Dollar Index is at Bear Vertical Option Spread Strategy A bear vertical option spread is the flip side of the bull vertical option spread.
Using the US dollar index as a trading tool
You use it when you think the U. To open this spread, you buy one in-the-money put and sell one out-of-the-money put. The put you buy must have a higher strike price than the put you sell.
The premium you collect from buying the in-the-money put option is subtracted from the cost of selling the out-of-the-money put option. Your risk is limited to the net cost of the options.
Dollar Index is heading. To open the trade, you buy an equal number of at-the-money call and put options with dollar index option same expiration date. You profit when the U. Index moves higher or lower than one of the option strike prices.