Good Morning

CURRENCY
OPTION
By: Ankit Mittal
Anjali Pahwa
Meena Jain
MBA, PIET
 CURRENCY OPTION

 Currency options are similar to options on ordinary stocks.

 Currency options provide the right but not the obligation to buy
or sell a specific currency at a specific price at any time prior to
a specified date.
 Currency options are not substitute for forward market but as a
new, distinct and advantageous to those seeking either
protection or profit from changes in exchange rates.
 BENEFITS OF OPTION TO USERS

 The user of option obtain an insurance against the adverse

movement in exchange rate but retains the opportunity to
benefit from a favourable movement in exchange rate.
 TYPES OF OPTIONS

AMERICAN OPTION EUROPEAN OPTION

An option which can be An option which can

exercised on any business be exercised only on
day within the option the expiry date.
period.
 In options the right and obligations for
performing a contract are separated and sold
therefore an option may be:
1. a Call Option or
2. a Put Option.
 CLASSIFICATION OF OPTIONS

OPTIONS

CALL OPTION PUT OPTION

Buy of foreign currency Sale of foreign currency

Buyer of Seller of Buyer of Seller of

call option call option put option put option
(RIGHT) (OBLIGATION) (OBLIGATION) (RIGHT)

CALL OPTION- A call option is an option to purchase a
stated number of unit of underlying foreign currency at a
specified price per unit during a specified period of time.
 PUT OPTION- A put option gives the right to sell the
underlying foreign currency at the specified price per unit
during a specified period of time.
 OPTION BUYER- Option buyer is the party who obtains the
right by paying a premium.
 OPTION SELLER- Option seller is the party who owns
obligation to perform if the option is exercised.
 TERMS USED IN RESPECT OF
OPTION
 EXERCISE / STRIKE PRICE OF AN OPTION- The price at
which the option holder has the right to purchase or sell the
underlying currency.

 EXPIRATION MONTH OF AN OPTION- The expiration

months for option are: March, June, September and December.

 EXPIRATION DATE OF AN OPTION- The last day on

which an option may be exercised.
 INTRINSIC VALUE OF AN OPTION- It is the extent to
which an option is profitable to exercise.

 NOTICE OF EXERCISE- It is required to

be given by an option holder to an option
writer that the option is being exercised.

 OPTION AT THE MONEY- Exercise Price = Spot Price.

 OPTION OUT OF MONEY- Exercise Price > Spot Price.


OPTION IN THE MONEY- The option is said to be in the
money if the market price of the underlying currency exceed
the exercise price.
Exercise Price < Spot Price.
THANKS