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Important Disclaimer
for U.S. Residents

IFSCL

Services

Options

Call Option
A call option gives the buyer the right to buy (go long) a spot currency pair at a specific price on an expiration date. For example, a Euro/USD 1.25 call option expiring on September 15th gives the buyer the right to buy or go long spot EU/$ @ 1.25 on September 15th. Even if spot EU/$ goes well past 1.25, the option buyer retains the right to own the underlying spot position at 1.25 on the expiry date. Of course, the option buyer may close the option prior to the expiration.

Put Option
A buyer of a put option has the right to sell (go short) a spot currency pair at a specific price on the expiration date. For example, a Euro/USD 1.20 put option gives the put buyer the right to sell EU/$ @ 1.20 on the expiry date of the option. Should spot EU/$ go well below 1.20, the put holder (buyer) still retains the right to go short at 1.20.

Puts and calls are separate option contracts; they are not the opposite side of the same transaction. For every put buyer there is a put seller, and for every call buyer there is a call seller. The option buyer pays a premium to the seller in every transaction. Options are often thought of as difficult to learn –requiring numerical ability beyond most people. Actually, options are not difficult to understand once the basic vocabulary is mastered. Only the very advanced options concepts and strategies require any complex mathematics.

Types of Options

Types of Option Trades