In the process of their activity, banks and participants in foreign economic activity actively use the trading of currency options (FX options). FX options help reduce currency risks, because they allow you to exercise the right to buy / sell foreign currency at a pre-agreed exchange rate.

An option is a contract for the right (not obligation) of a transaction with an underlying asset in a certain period of time. Therefore, ownership of this right is valued at the amount of money paid for the option (premium).

But the financial benefit of being able to control exchange rates is usually several times higher. Therefore, it is currency options that are an effective way to control currency risk. Often, professional participants require specific conditions for concluding a currency option, and the solution is to conclude an over-the-counter option for a currency transaction. In addition, options are often concluded with a floating expiration date and strike price - FLEX options. But how can non-institutional participants profit from option contracts based on foreign currency? It's simple:

If the bidder is interested in purchasing currency at a certain rate in the future, then he can buy a call option with the exchange price of interest to him;
. if the bidder is interested in selling the currency at a certain rate in the future, then he can buy a put option with the exchange price of interest to him.

Currency Options Trading on the Moscow Exchange

There is a section of the foreign exchange market on the Moscow Exchange where delivery transactions with foreign currency take place in various trading modes. The average turnover of this market exceeds 1 trillion rubles / day. This is the oldest market of the MICEX (Moscow Interbank Currency Exchange), inherited by the Moscow Exchange after the merger of the MICEX and the RTS (Russian Trading System). Moreover, individuals can make conversion transactions with currency and withdraw funds to their foreign currency accounts just in this market. To do this, open a trading account with a brokerage company that is a participant in foreign exchange trading.

Fig. 1. Assets of the currency market of the Moscow Exchange

But option contracts, the underlying asset of which are the corresponding futures contracts, are also present on the derivatives market of the Moscow Exchange. As for futures, futures on currency pairs are traded on the derivatives market: US dollar / Russian ruble, Euro / Russian ruble, Euro to US dollar, US dollar to Japanese yen, British pound to US dollar, Australian dollar to US dollar USA, US dollar to Canadian dollar and US dollar to Swiss franc. Moreover, all these contracts are settlement, as can be seen from the specification. That is, delivery / debiting of currency on them does not occur - only the transfer of the variation margin is performed. The most liquid futures contract is the contract for the US dollar / Russian ruble. A day through it passes the volume of several million contracts and about a million transactions.

Fig. 2. Moscow Exchange Derivatives Market Futures

Fig. 3. US Dollar Futures Specification

If we compare the dynamics of futures for the US dollar and a couple of dollar / ruble in the foreign exchange market, we will see that they are almost synchronous. This indicates the possibility of using options on currency futures on the derivatives market to hedge currency risks and extract speculative profit from fluctuations in the exchange rate of currencies. Assets can be in easy contango / backwardation (cost slightly higher / slightly lower than each other), but in general their correlation is almost perfect. Even the lottery coincides - both contracts imply a deal with 1000 cu The essence of the “settlement” of the futures is that money is delivered (in rubles) by transferring the variation margin, but it, in turn, corresponds to the difference in exchange rate fluctuations, and therefore allows you to control currency risks.

Fig. 4. Comparison of the dynamics of USDRUB_TOD and futures on the US dollar / Russian ruble.

For currency futures contracts, the following options are presented for currency pairs: US dollar / Russian ruble, Euro / Russian ruble and the euro / dollar exchange rate - that is, for the most liquid currency futures.

Fig. 5. Option board for the US dollar - Russian ruble in comparison with the charts USDRUB_TOD and futures for the US dollar - Russian ruble

The average cost of a dollar option is 3-3.5% of the cost of the underlying asset for the central strike (option for a month), which is much less than possible price fluctuations. Moreover, using various options trading options, you can reduce the indicated value to a lower one, which will allow you to more effectively control your currency risks.

Accordingly, by buying call options (green field of the board), you get the right to buy dollar futures over the life of the option. In turn, when you buy put options, you get the right to sell dollar futures at the strike price of the option before it is expired.

It is worth noting that you can sell currency options on the derivatives market and make money at those levels where dollar futures “will not reach” before the option expiration (both up and down). You can also build various non-linear constructions that allow you to earn on a sharp movement of the currency in any direction, or the failure of the currency from a certain corridor.

Conclusion

Options on currency pairs in the derivatives market are not only an effective method of controlling currency risk, but also a way to extract speculative profit from various non-linear (and linear) changes in exchange rates. A similar hedging method is called “intersectoral” (when one highly correlated instrument hedges an instrument belonging to another market). Otkritie Broker, as a leading participant in foreign exchange and exchange trading, will teach you how to effectively reduce foreign exchange risks and make increased profits from currency fluctuations. Register on our portal to start working right now!

Most of our fellow citizens have quite a lot of free time, but at the same time there is not enough money for the right, and often the necessary. But the world around is full of opportunities. And they do not need to go far for someone who has the World Wide Web at hand. It opens up a sea of \u200b\u200bperspectives. You just need to try to see them.

Today I will tell you about currency options. To understand the mechanism of trade with this tool, you first need to understand the essence of the concept itself.

An option is a contract between the seller and the buyer, according to which the buyer for a fee (premium) acquires the right (only the right, not the obligation) to buy the agreed amount of the asset (currency in our case) at a pre-agreed price (strike) for a certain period.

What is the currency option used for?

Currency options are instruments that allow hedging (insuring) risks. True, in fact for insurance they are used mainly by large enterprises whose activities are associated with the export or import of goods. For example, company B periodically buys currency to purchase, say, goods for sale. But the exchange rate is not stable, especially during times of crisis. This makes planning difficult, so the company is interested in buying a currency at a pre-agreed price, which, as a rule, does not differ significantly from the current one, which is why it buys an option. If the value of this currency grows, the company will save money. If it falls, then it will lose, but predictability is important for the business, i.e. It is important to be able to plan. This is sometimes more important than the loss of a small amount of money.

A currency trader can also use this tool:

1) For speculative purposes, i.e. to earn on the difference between the purchase price and the sale price.

2) For hedging, in other words, insurance.

How to trade options?

In practice, it looks like this. A news trader, for example, about the imminent rise in the price of the US dollar, buys an option call, giving him the right to purchase, say, 10,000 dollars for 62 rubles. for 6 months. If in the agreed period the dollar grows to, say, 67 rubles, then the trader, having his own and borrowed funds (leverage), uses his right to buy at 62 rubles. Further, he sells the acquired currency on the market at 67. The difference (minus the cost of the paper itself - the option) is its income. If, contrary to forecasts, the dollar does not rise in price, but becomes cheaper, the trader refuses the deal. The commission paid (it is more correct to call it a bonus), of course, is not returned to him. She will make a loss from the transaction.

Hedging is appropriate if the trader has open positions in spot transactions (transactions with immediate payment). Simply put, options are bought for hedging when a trader knows that in a certain period of time he will need some kind of currency.

Types of options!

Options are divided into put and call. A put is an option to sell currencies in our case, a call is a purchase. To acquire

an option to buy is advisable if the price of an asset goes up - it rises. If the asset is projected to become cheaper, then a put is bought. A game of promotion, i.e. counting on an increase in the price of an asset, it’s understandable, but a game for a fall usually raises questions for beginners. The mechanism is as follows. A trader who expects the dollar to fall, for example, from 62 to 57-59 rubles, buys an option to sell. If the forecast comes true, and by the time of expiration (expiration date of the option) the dollar is really cheaper, say, up to 58, while the option price (strike) 62, the trader buys currency on the spot market at 58 and presents the paper for execution at 62, respectively. The difference (minus the premium) is the income of the trader.

Options brokers!

An important part of success in trading Forex options is the right choice of broker. There are no special secrets here. Here, as in any business. You can choose a scammer, and then tell everyone that trading options through the Internet is a complete hoax. And you can take this responsibly, and everything will be fine. Simply put, your Lenya Golubkov is in any industry. In the same way, you can frivolously choose an unknown online store and run into a swindler. But you must admit that today it is very rare. It is the same with brokers. Watch reviews, ratings, participation in self-regulatory organizations, read the advice of experienced traders, communicate on the forums. And you will find out who you can trust.

Separately, it should be said about self-regulatory organizations. Since the broker's membership in them is a much more important signal than all other factors. The company submits an application to the SRO in order to increase the confidence of potential customers. If a trader suspects his broker of "unfair play," he can contact the SRO to conduct a check.

Among the largest and most well-known option brokers with a good reputation are:, and many others. There are a lot of really good companies. But not all of them offer good conditions for beginners. Although the choice is largely individual, you need to focus on: the amount of remuneration for services, the level of minimum deposit and minimum transaction, functionality, service. Here in these aspects reviews and reviews will help.

Of course, it is not easy to become rich, but if every day after work at least 1 hour to pay attention to Forex, then in a month or two the first Internet incomes will appear. They won't be big right away, but it's just a matter of time. Success is inevitable if you make an effort and take it seriously. You only need to want to become a wealthy person and find 1 hour a day. You just need to finally decide to take the hour off the evening movie or computer game and start working. Better do it right now. And believe me, unfamiliar words, such as strike, put, call, are not at all difficult. You do not need to have a special education and any special talent for this. The main thing in trading is the desire to succeed, instead of the usual passivity, and strong nerves. Successful trading of currency options!

A currency option is an agreement between two brokers (dealers). Under this agreement, one broker (dealer) writes out and transfers the option, and the other purchases it and obtains the right, within the stipulated terms of the option term, or to buy at a specified rate (strike price) a certain amount of currency from the person who has written the option (purchase option), or sell this currency to him (option to sell).

Thus, the seller of the option is obliged to sell (or buy) the currency, and the buyer of the option is not obliged to do this, i.e. he can buy or not buy (sell or not sell) currency.

An option is a special form of insurance of currency risks that protects the buyer from the risk of adverse changes in the exchange rate above the agreed strike price, and gives him the opportunity to receive income if the exchange rate changes in a favorable direction for him above the strike price.

The growth of the exchange (i.e. current) exchange rate compared to the strike price is called the upside (from the English upside - the upper side). The decrease in the exchange rate compared to the strike price is called the downside (from the English downside - the bottom side).

There are three types of options:

option to buy, or option com (from the English call). This option means the right of the buyer of the option (but not the obligation) to buy a currency to protect against (or based on) a potential increase in its rate;

option to sell, or put option (from shhl.rSh). This type of option means the buyer's right of the option (but not the obligation) to sell the currency to protect against (based on) their potential impairment;

a double option (from the English put-call option), or a shelving option (German stallage). This type of option means the right of the buyer of the option to either buy or sell currency (but not buy and sell at the same time) at the base price.

The term is indicated on the option - this is the date (or time period) after which (which) the option cannot be used.

There are two styles of options: European and American.

European style means that the option can only be used on a fixed date.

American style means that the option can be used at any time within the term of the option.

The option has its own course - this is the strike price (from the English strike price). Option rate - the price at which you can buy or sell currency, i.e. option asset.

The buyer of the option pays the seller of the option or the person who has paid the option a fee called a premium.

Bonus - option price. The risk of the option buyer is limited to this premium, and the risk of the option seller is reduced by the amount of the premium received.

Possession of an option enables its holder to react flexibly in case of uncertainty of future obligations. An option transaction is not obligatory for the owner of the option, therefore, if the option is not exercised, the owner can either resell it or leave it unused. Currency options are traded in foreign exchange markets around the world, including markets in the USA, London, Amsterdam, Hong Kong, Singapore, Sydney, Vancouver and Montreal. In all of these markets, three types of currency options are traded.

over-the-counter options of the European type. Such options are issued by banks for their customers - exporters and importers in accordance with their needs in terms of the size of the contract and the date of its execution. An option issuer usually hedges a forward contract with another bank or an option contract with an exchange to hedge its risk;

exchange-traded currency options, which first began to be traded in the early 80s on the Philadelphia Exchange;

options for currency futures traded, for example, on the Chicago Board of Trade.

Table 24.7 shows the data forms for quotes of currency options published in print.

Table 24.7

Philadelphia Exchange Options Option & Underlying CA1IS - LAST PUTS - LAST STRIKE PRICE 31,250 GBP per unit Mar Apr Jun Mar Apr Jun B Pound 158 RRRR 1.44 / g 160.44 159 RRR 1.07 RR 160.44 160 2.00 R 3.55 1.53 RR 160.44 162 0.87 R 2.50 RRR 160.44 163 0.75 RSRRS 160.44 164 0.50 RRRRR

The symbol R means that trading on this option on this day was not conducted, the symbol S - this option does not exist.

From the above data it can be seen that at the current rate of the pound sterling equal to 160.44 prices per 1 f. Art., it was possible to buy options for the purchase or sale of 31,250 p. Art. with a strike price of 158 to 164 cents for 1 f. Art. Moreover, on this day, not all existing options were traded, but June options with a strike price of 163 cents per 1 f. Art. was not on the exchange.

Example. An option to purchase US dollars with the following parameters is offered on the currency exchange: transaction volume - 10 thousand dollars. USA; term - 3 months;

optional rate (strike price) - 27 rubles / dollar. USA; premium - 0.5 rubles / dollar. USA style is European.

The acquisition of such an option allows its owner to buy 10 thousand dollars. USA after 3 months at the rate of 27 rubles. for 1 dol., i.e. the cost of buying foreign currency will be 270 000 rubles. (10 000 dollars. X 27 rubles.).

When concluding an option contract, the buyer of the option pays the seller of the option a premium of 5,000 rubles. (10,000 dollars x 0.5 rubles). The total cost of buying an option and currency for it is 275,000 rubles. (270 000 rub. + 5000 rub.).

When buying an option, the buyer provides himself with complete protection against an increase in the exchange rate. In our example, the buyer has a guaranteed currency purchase rate of 27 rubles. for $ 1 USA. If put on the exercise of the option, the spot rate will be higher than the option rate, then the buyer will still buy the currency at the rate of 27 rubles / dale. The United States will benefit from an appreciation of the currency in the market. If on the exercise day the spot rate is lower than the option rate, the buyer can refuse the option and buy dollars in the cash market at a lower rate than the option rate. Thus, he benefits from a decrease in the exchange rate1.

For an option to purchase a currency when it is implemented, an effective exchange rate

Therefore, the condition under which the exercise of the option to purchase a currency is more profitable (allows you to buy a currency cheaper), has the form:

which is equivalent to condition Jaa 1 Strategies for trading futures and options are described in more detail in: WeisweilerR. Arbitration. Opportunities and technique of operations in financial and commodity markets / Per. from English M .: Zerich-PEL, 1993.S. 139-144; Stock portfolio (Book of the issuer, investor, shareholder. Book of stock exchange. Book of financial broker) / Resp. ed. Yu.B. Rubin, V.I. Soldatkin. M: Somintek, 1992.S. 69-721; Edler A. How to play and win on the exchange / Per. from English M .: KRON-PRESS, 1996.

Ministry of Ecology and Science of Ukraine

Kremenchutsk National University M. Ostrogradsky

Control robot

z discipline "International credit and rozrahunkov that currency operations"

on the topic: "Currency options"

currency option buyer exchange

Kremenchuk 2011

Currency options

A currency option is a contract between a buyer and a seller that gives the buyer the right, but does not impose an obligation, to purchase a certain amount of currency at a predetermined price and within a predetermined period, regardless of the market price of the currency, and imposes an obligation on the seller (writer) to transfer to the buyer currency within the established period, if and when the buyer wishes to carry out an option transaction.

A currency option is a unique trading instrument, equally local for both speculation and hedging. Options allow you to adapt the individual strategy of each participant to market conditions, which is vital for a serious investor.

Options prices, in comparison with the prices of other currency trading instruments, are affected by a larger number of factors. Unlike spots or forwards, both high and low volatility can create profitability in the option market. For some, options are a cheaper currency trading tool. For others, options mean greater security and accurate execution of orders to close a loss-making position (stop-loss orders).

Currency options occupy a rapidly growing sector of the foreign exchange market. Since April 1998, options have occupied 5% of the total. The largest option trading center is the United States, followed by the United Kingdom and Japan.

Option prices are based and are secondary to RNV prices. Therefore, an option is a secondary instrument. Options are commonly referred to in connection with risk insurance strategies. However, traders are often confused about the complexity and ease of use of options. There is also a lack of understanding of options options.

In the forex market, options are possible in cash or in the form of futures. It follows that they are traded either “over the counter” (over-the-counter, OTC), or in a centralized futures market. Most foreign exchange options, approximately 81%, are traded in OTC (see Figure 3.3.). This market is similar to spot and swap markets. Corporations can contact banks by phone, and banks trade with each other either directly or through brokers. With this type of dealing, maximum flexibility is possible: any volume, any currency, any term of the contract, any time of day. The number of units in foreign currency can be integer or fractional, and the value of each can be estimated both in US dollars and in another currency.

Any currency, not only that which is available under futures contracts, can be traded as an option. Therefore, traders can operate the prices of any, the most exotic currency that they need, including cross-prices. The validity period can be set any - from several hours to several years, although basically the dates are set based on integer numbers - one week, one month, two months, etc. RNV works continuously, so options can be traded literally around the clock.

Trading options on currency futures gives the buyer the right, but does not impose an obligation to own a physically foreign currency futures. Unlike currency futures contracts, you do not need to have an initial cash reserve (margin) to purchase foreign exchange options. The value of the option (premium), or the price at which the buyer pays the seller (writer’s), reflects the overall risk of the buyer.

The following seven key factors influence option prices:

1. The price of the currency.

2. The selling price (strike (exercise) price).

3. Currency volatility.

4. Validity.

5. The difference in discount rates.

6. Type of contract (call or put).

7. Option model - American or European.

Currency premium- a positive difference between the formal and the current exchange rate.

Types of currency options: call option, put option

An option may be to buy or sell an underlying asset.

Call option is a buy option. Gives the option buyer the right to buy the underlying asset at a fixed price.

Put option - a sell option. Gives the option buyer the right to sell the underlying asset at a fixed price.

Accordingly, four types of options transactions are possible:

Buy Call Option

Write Out (Sell) Call Option

Buy Put Option

List (Sell) Put Option

Buy Call Option

This strategy is most often used if price increases are expected for a particular product.

In this case, the investor’s risk is limited only by its premium - part of the price of the goods. In a situation where he buys 80 call options, the premium is 5. This means that he risks only these five. This means that buying an option carries less risk than buying a particular product. However, even in this case, the premium is at risk, so there is a possibility of losing all investments, even if the amount of investments was small.

Less risk implies less income. The profit from buying options is quite small. This is due to the fact that according to the contract, operations can be performed only at a fixed price.

Call Option Sale

When selling a call option, the seller risks quite a lot because he must provide the goods at a predetermined price, the so-called uncovered strategy.

With such a risk, the maximum profit that the seller can get is a premium. So, when he buys 80 call options, the premium is 5. Selling a call option to open a position is the so-called short call option.

Buying a Put Option

In this case, as with the sale of a call option, the risk is limited only by the size of the premium. The purchase of an option is made with the aim of generating income from a fall in the price of a particular asset. The shareholder acquires the right to sell the asset at a fixed price, and he will receive profit only if the asset prices fall.

The holder can receive the maximum income from this transaction only if the price of the goods drops to zero. Buying a put option to open a position is a long put option.

Put Option Sale

When selling a put option, the holder risks quite a lot, as he is obliged to deliver a certain product at a fixed price. Moreover, if the market price of an asset falls, the seller is forced to pay a large sum of money for the depreciated goods. If the price of assets drops to zero, the investor will lose the contract execution price and the premium.

As for income from the sale of an option, it is made with the expectation that there will be no request for its implementation. Selling a put option to open a position is a short put option.

Option style.

Options differ in style: European option, or European-style option (European option, European style) and American option, or American-style option (American option, American style).

The main difference between them is that they have different terms of execution on time. Further it will be possible to see that due to the influence of such a factor as the life of an option contract, the cost (premium) of European and American options is different.

A European option can be exercised for a very limited period of time around the expiration date of the option. Formally, it is considered that this is a day that is defined as the date of exercise of option contracts. However, the practice of placing orders and the reconciliation procedure predetermine somewhat wider boundaries, which nevertheless still fit into a number of hours that do not expand the horizons too much.

An American option can be exercised at any time before the expiration of the option. For such an option, exercise is determined solely by the rules that are currently in force in relation to the delivery time of the asset underlying it, as well as the capabilities of the broker through which one is carried out. walkie-talkies in the market. There may also be restrictions on the number of option contracts executed during one trading day. Usually this is 2,000 option contracts.

Types of currency options in place

Option contracts can be divided into two types: exchange option contracts and over-the-counter option contracts. Most global stock, commodity and financial futures exchanges offer futures contracts, transactions with which are carried out under their control.

Exchange options are standard exchange contracts and their circulation is similar to futures contracts. For such options, the exchange sets the specification of the contract. When transactions are concluded by bidders, only the option premium is negotiated; all other parameters are standard and set by the exchange. The published stock exchange quoting for an option is the average value of the premium for this option per day. From the point of view of exchange trading, options with different strike prices or strike dates are considered different contracts. For exchange options, the clearing house records the positions of participants under each option contract. That is, the bidder can buy one contract and if he sells a similar contract, then his position is closed. The clearing house of the exchange is the opposite side for each side of the option contract. For stock options, there is also a mechanism for levying margin fees (usually paid only by the option seller).

OTC options, unlike exchange options, are concluded on arbitrary terms, which are negotiated by the participants when concluding a transaction. The technology of conclusion is similar to forward contracts.

A currency option is one of the types of equity securities. Such a document is especially popular in the foreign exchange market and in banking. It is purchased mainly by traders who earn on buying and selling foreign currency.

How is a foreign currency option different than usual?

An option is a contract, one of the parties of which acquires the right to sell (buy) an underlying asset at a fixed price in a predetermined period of time. Currency refers to a document whose underlying asset is a currency unit. Such securities are very common in interbank relations and in specialized markets.
  The following clauses should be specified in each contract:
1) Type of document.   A security may be divided into two types depending on the right that it gives after the acquisition.
2) Underlying asset.   The currency pair, which is the main object of the contract, must be precisely agreed.
3) Strike price (strike price).   The seller of the option is obliged to sell (buy) the asset at this price regardless of how it has changed over time.
4) Deadline.   The buyer can exercise his right only in a certain period, as a rule, from several days to several months.
  5) Option Bonus   - the amount of money that the buyer pays to the seller at the time of conclusion of the contract. The fee is a kind of compensation for the risk assigned to the seller, quite often it is called the option price.

The main types of currency options

The contract holder can either sell or buy the underlying asset. Depending on this, the contract can be divided into two types.

Call options

A call option (buyer's option) is a contract, one of the parties of which receives the right to buy the underlying asset. The sale price is agreed in advance and does not change during the entire transaction. The seller must purchase the asset at a strike price no matter how much it differs from the market price, in return for this he asks for a small premium.

A currency option is a great way to make money on fluctuations. A trader acquires it in the hope of increasing the value of the base currency in the near future. Buying a security differs from ordinary investments in foreign currency with minimal risks, because even if the underlying asset becomes much cheaper, the trader will lose only the money that he gave to the seller as a bonus.

Example of using a currency call option

A trader buys a security to buy euros at the current exchange rate (for example, 50 rubles). He does this in the hope that during the course of the right given to him, the course will begin to rise. The premium is 5% of the amount that can be purchased. If the investor wanted to receive 1000 euros, he must pay 50 to the seller. A currency call is advantageous only if the increase in the rate is more than 5%, otherwise it will give the seller more than earn on the difference in strike and market price.
  Suppose that during the indicated period the euro grew by 10%, which means that the investor will receive 5% of the profit on the amount invested, i.e. 10% increase - 5% bonus. If you subtract 5% of the amount of 1000 euros, you get a very small profit of 50 euros. Experienced investors work with more impressive amounts, and even such a small increase can give excellent income.

Put options

A security that gives the holder the right to sell the asset at an agreed price is called a put option.
  In the foreign exchange market, put is for the most part necessary for insuring foreign currency investments already made. For example, in the event that a trader holds his savings in foreign currency, but soon finds out about future inflation. Then he gets a put and can be calm: the funds that he invested will be returned to him minus the minimum cost of the contract.

An example of using a currency put option

You can earn not only on the growth of the exchange rate, but also on its decline. To do this, you need to sell the currency in the future at the price that is currently valid. For this, many investors use currency put options.
  Suppose that the data on the foreign exchange market speak of an imminent drop in the dollar. Such information is a good reason to earn extra money, but there are certain difficulties, because in the usual sense, currency inflation is a loss of savings. In fact, with the right approach, even on a negative change in the exchange rate, you can earn.
The investor acquires the issue paper for the sale of a certain amount of dollars at the current price and gives 5% of the amount that he wants to realize for this right. At the time of the contract, the dollar falls by 20%. A trader buys $ 20,000 at the current price and sells them to a person selling securities at a strike price. When taking into account the premium, which invariably remains with the seller, the trader earns 15% of the profit from his transaction, i.e. 3 thousand dollars.

“Geographical” types of currency options

For the first time securities of this kind appeared in Europe, but they found great popularity in America. Gradually, the procedure for exercising the right certified by an option began to change depending on geopolitical affection: American options act on their own principle, European ones on their own. In Asia, the American type of security has found another direction.

American option

At the moment, it is the American model that is more popular and widespread. It is used everywhere and, oddly enough, even in Europe.
  Its main difference from the European model is that early expiration is available to the buyer - the exercise of data rights in an option.
  Early execution of the contract is beneficial for its holder. At the time of its operation, the price of an asset can increase significantly or, conversely, decrease. A trader has the right to convert currency at a time when it will be profitable for him.

European option

The premiums for such a document are slightly below average. The fact is that the seller is exposed to minimal risk, since the buyer can not take advantage of early expiration. A certain period must pass from the moment of conclusion of the contract to its execution. Only at the expiration of this time, the buyer can exercise his right. He will not be able to profit from an intermediate increase (decrease) in the price of an asset.

Asian option

  An option is a product in some way and a price should be assigned to it. Since the advent of global options exchanges, many analysts have set themselves the question: how to calculate the premium.

The fairest calculation model was the one that focuses on the average price of an asset for a certain period. It was first tried by a branch of an American bank in Tokyo. Soon the contracts, the premiums for which were calculated in this way, were called Asian.

Exotic types of currency options

Gradually, the concept of what a currency option is, began to change and take on a completely different form. Appear types of documents that are only distantly related to ordinary securities.

Barrier Currency Options

Options is a game of chance. Each of the parties to the agreement seeks to maximize profits, and is ready to lose everything if the outcome is unsuccessful.
  Barrier currency options have become the first step towards turning an ordinary security into a global digital market, where the main idea of \u200b\u200beach participant is to get as much money as possible.
  Barrier agreements differ from ordinary ones by the presence of an obstacle to the realization of the right to purchase or sell an asset: in order for a document to be converted, the price of the underlying asset must reach a certain level.
  As the risk of the buyer increases, the contract indicates a more favorable price for him, which may differ significantly from the market. For example, a seller agrees to sell dollars at a price of 35 rubles (at the moment they cost 40) in the event that within 1 month their price reaches 45 rubles.
  With the beginning of the popularity of barrier transactions, the underlying asset began to gradually go out of circulation. Instead of buying and selling foreign currency, the seller of the security simply reimbursed the profit that the buyer could receive from his further transactions. This approach is beneficial for both parties: the seller spends less of his time, and the buyer is insured against additional risks, for example, from the fact that in the period from converting a document to reselling an asset, the exchange rate can change in a disadvantageous direction.

Range Currency Options

In the case of them, the buyer can exercise his right only if the exchange rate at the time of execution of the contract is in a certain range, more (less) than the number n, but not more (less) than the number n + m.
  For example, a document to buy a dollar at a price of 35 rubles can be implemented only if, at the end of the execution period, the rate will be in the range of 36-40 rubles. The price range is offered by the seller, the buyer has the right to demand its change.
  The range may be at the level of the current course, more or less. In fact, the investor is betting on increasing or decreasing the value of the asset.

  The last step in the transformation of ordinary securities was binary options. They differ from their ancestors very much and it is possible to trace at least any similarity between them only by learning what barrier and range agreements are.

In binary options, the asset is completely out of circulation. The main object was its price. Traders place bets on her behavior over a certain period of time. If they believe that she will grow up, they bet on “calling” that she will fall - “put”. As you can see. Even the concepts of call and put have lost their former meaning.
  The exercise price does not depend on the behavior of the asset in the foreign exchange market: it is assigned by the broker (seller of the option). The strike price is indicated as a percentage of the bet amount. The option premium depends on the buyer: the more he puts, the more he will receive and the more he may lose. The bonus remains with the broker only if the investor’s bet has not played. It turns out that for any outcome, with money on hand, only one side of the agreement remains, which is why such transactions are often called "all or nothing."

Currency options in banking relationships

At the moment, the most affordable option seller is second-tier banks. They distribute securities, both among individuals and legal entities.
  Ordinary citizens can purchase this security as a guarantor of reimbursement of a deposit in foreign currency. Options for individuals - this is a new direction in bank investment, so it is worth telling more about it.
  A currency option with a deposit cover is an opportunity to receive a more favorable interest on a deposit and at the same time a rather serious financial risk. In essence, this is a put option: the client opens a deposit in the base currency and acquires the right to sell this currency to the bank. The document specifies the course chosen by the client himself, as well as the size of the bank's premium. The range of possible rates is chosen by the bank. The contract has a period of from one week to a month. If, at the end of this period, the rate chosen by the client is more profitable than the current one, he can use his issue document and convert the savings into currency at a more favorable rate. In addition, the bank returns the amount of the premium.
  If the selected rate is lower than the current one, the client leaves his right unclaimed, and the premium remains with the bank.
  That is, for example, a client opens a deposit in the amount of 100 thousand rubles and acquires an option from the bank to convert this amount into dollars at the rate of 38 rubles. At the moment, the rate is 40 rubles. The deadline is one week. For the contract, the client must pay 10% of the deposit, but only if he does not use it.
If, at the end of the contract, the dollar exchange rate remains unchanged or even rises, the client remains in positive territory. He exercises his right and transfers the deposit in dollars at a rate lower than the market. The bank reimburses the value of the security as a bonus. If the dollar fell below 38 rubles, it would be unprofitable for the client to use the option. He just lets him burn out and at the same time loses 10 thousand rubles (option premium).
  No matter how cordial it may sound, such a banking offer is not very profitable. The bank puts forward clear conditions that prevent the client from making big profits. Deposit interest is usually lower than market average and a favorable change in the exchange rate only covers this difference.

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