Options

Front 1

5 Basic option elements

Back 1

underlying currency
contract size
expiration date (expiry)
exercise/strike price
call/put

Front 2

American-style options

Back 2

can be exercised on any business day prior to the expiration date.

Front 3

European-style options

Back 3

can be exercised at expiration only.

Front 4

For Put Options
In-the-Money =

Back 4

Spot Price is below Option Strike (Exercise) Price

Front 5

For Put Options
Out-of-the Money =

Back 5

Spot Price is above Option Strike (Exercise) Price

Front 6

For Put Options
At-the-Money =

Back 6

Spot Price and Strike (Exercise) Price are the same

Front 7

For Call Options
In-the-Money =

Back 7

Spot Price is above Option Strike (Exercise) Price

Front 8

For Call Options
Out-Of-the-Money =

Back 8

Spot Price is below Option Strike (Exercise) Price

Front 9

For Call Options
At-The Money =

Back 9

Spot Price and Option Strike (Exercise) Price are the same

Front 10

currency options are available for trading when?

Back 10

with fixed quarterly months of March, June, September and December with two additional near-term
months.

Front 11

Strike price intervals

Back 11

are narrower for the nearterm
and wider for the long-term options.

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Underlying Currency

Back 12

the currency which is purchased upon exercise of the contract.

Front 13

The base currency

Back 13

The currency in which terms the underlying is being quoted, i.e. strike price.

Front 14

Customized option contracts expiration

Back 14

10:00 a.m. Eastern Time on the expiration day

Front 15

standardized options expiration

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expire at 2:30 p.m., Eastern Time on the expiration day.

Front 16

position limits

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are set at 200,000 contracts
on each side of the market

Front 17

Calendar spread

Back 17

- The simultaneous sale and purchase of either calls or puts with the same strike
price but different expiration months.

Front 18

Spread

Back 18

- A strategy involving the simultaneous sale and purchase of two different series of options
with different strike prices or expiration months.

Front 19

Straddle

Back 19

- The simultaneous sale or purchase of both a call and a put with the same expiration month and with the same strike price.

Front 20

Strangle

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- The simultaneous sale or purchase of both a call and a put with the same expiration month and different strike prices.

Front 21

Average Options -

Back 21

A path dependant option which calculates the average of the path traversed by the asset, arithmetic or weighted. The payoff therefore is the difference between the average price of the underlying asset, over the life of the option, and the exercise price of the option.

Front 22

Barrier Options -

Back 22

These are options that have an embedded price level, (barrier), which if reached will either create a vanilla option or eliminate the existence of a vanilla option. These are referred to as knock-ins/outs which are further explained below. The existence of predetermined price barriers in an option make the probability of pay off all the more difficult. Thus the reason a buyer purchases a barrier option is for the decreased cost and therefore increased leverage.

Front 23

Digital Options -

Back 23

These are options that can be structured as a "one touch" barrier, "double no touch" barrier and "all or nothing" call/puts. The "one touch" digital provides an immediate payoff if the currency hits your selected price barrier chosen at outset. The "double no touch" provides a payoff upon expiration if the currency does not touch both the upper and lower price barriers selected at the outset. The call/put "all or nothing" digital option provides a payoff upon expiration if your option finishes in the money. It is referred to as "all or nothing" because even if your option finishes in the money by 1 pip, you receive the full payoff. Digital options are usually settled in cash.

Front 24

Knockin Options -

Back 24

There are two kinds of knock-in options, i) up and in, and ii) down and in. With knock-in options, the buyer starts out without a vanilla option. If the buyer has selected an upper price barrier, and the currency hits that level, it creates a vanilla option with a maturity date and strike price agreed upon at the outset. This would be called an up and in. The down and in option is the same as the up and in, except the currency has to reach a lower barrier. Upon hitting the chosen lower price level, it creates a vanilla option. Knock-ins/outs usually call for delivery of the underlying asset, unlike digitals which are settled in cash.

Front 25

Knockout Options -

Back 25

These options are the reverse of knock-ins. With knock-outs, the buyer begins with a vanilla option, however, if the predetermined price barrier is hit, the vanilla option is cancelled and the seller has no further obligation. As in the knock-in option, there are two kinds, i) up and out, and ii) down and out. If the option hits the upper barrier, the option is cancelled and you lose your premium paid, thus, "up and out". If the option hits the lower price barrier, the option is cancelled, thus, "down and out".