Foreign Currency Options A foreign currency option is a contract giving the option purchaser (the buyer)the right,but not the obligation,to buy or sell a given amount of foreign exchange at a fixed price per unit for a specified time period (until the maturity date). There are two basic types of options,puts and calls. A call is an option to buy foreign currency A put is an option to sell foreign currency
Foreign Currency Options A foreign currency option is a contract giving the option purchaser (the buyer) the right, but not the obligation, to buy or sell a given amount of foreign exchange at a fixed price per unit for a specified time period (until the maturity date). There are two basic types of options, puts and calls. A call is an option to buy foreign currency A put is an option to sell foreign currency
Terms of Options The buyer of an option is termed the holder, while the seller of the option is referred to as the writer or grantor. Every option has three different price elements: 翻 The exercise or strike price -the exchange rate at which the foreign currency can be purchased (call) or sold (put) The premium the cost,price,or value of the option itself The underlying or actual spot exchange rate in the market
Terms of Options The buyer of an option is termed the holder, while the seller of the option is referred to as the writer or grantor. Every option has three different price elements: The exercise or strike price – the exchange rate at which the foreign currency can be purchased (call) or sold (put) The premium – the cost, price, or value of the option itself The underlying or actual spot exchange rate in the market
Types of Options An American option gives the buyer the right to exercise the option at any time between the date of writing and the expiration or maturity date A European option can be exercised only on its expiration date,not before. The premium,or option price,is the cost of the option
Types of Options An American option gives the buyer the right to exercise the option at any time between the date of writing and the expiration or maturity date. A European option can be exercised only on its expiration date, not before. The premium, or option price, is the cost of the option
Terms of Options An option whose exercise price is the same as the spot price of the underlying currency is said to be at-the-money (ATM) An option the would be profitable,excluding the cost of the premium,if exercised immediately is said to be in-the-money (ITM) An option that would not be profitable,again excluding the cost of the premium,if exercised immediately is referred to as out-of- the money (OTM)
Terms of Options An option whose exercise price is the same as the spot price of the underlying currency is said to be at-the-money (ATM). An option the would be profitable, excluding the cost of the premium, if exercised immediately is said to be in-the-money (ITM). An option that would not be profitable, again excluding the cost of the premium, if exercised immediately is referred to as out-ofthe money (OTM)
EXHIBIT 7.3 Swiss Franc Option Quotations(U.S.cents/SF) Option Strike Calls-Last Puts-Last Underlying price Aug Sep Dec Aug Sep Dec 58.51 56 一 2.76 0.04 0.22 1.16 58.51 562 一 一 一 0.06 0.30 一 58.51 57 1.13 一 1.74 0.10 0.38 1.27 58.51 572 0.75 一 0.17 0.55 58.51 58 0.71 1.05 1.28 0.27 0.89 1.81 58.51 582 0.50 一 一 0.50 0.99 一 58.51 59 0.30 0.66 1.21 0.90 1.36 58.51 592 0.15 0.40 2.32 一 58.51 60 0.31 2.32 2.62 3.30 Note:Each option=62,500 Swiss francs.The August,September,and December listings are the option maturities or expiration dates