For whom it is intended:
- Particularly for legal entities
Definition:
Currency options are transactions wherein the seller provides to the buyer the right, but not the obligation, to buy (call option) or to sell (put option) a specified quantity of one currency against payment of an agreed quantity in another currency with settlement at an established future date. The buyer of the option pays the option premium to obtain this right.
- The buyer of a call option obtains a right to buy an agreed amount of a given currency for an agreed strike price at the settlement date.
- The seller of a call option is obliged to sell at the request of the option’s buyer (exercise right of the buyer) an agreed amount of a given currency for an agreed strike price at the settlement date.
- The buyer of a put option obtains a right to sell an agreed amount of a given currency for an agreed strike price at the settlement date.
- The seller of a put option is obliged to buy at the request of the option’s buyer (exercise right of the buyer) an agreed amount of a given currency for an agreed strike price at the settlement date.
Advantages of the product:
- The buyer of an option has unlimited possibility to participate in favourable market price development
Disadvantages of the product:
- The option’s buyer pays a premium to obtain this possibility.
Variations of the product:
- European option – The right to exercise the option is possible only on a single specific day.
- American option – The right to exercise the option is possible at any time after the date of concluding the transaction until the expiry date of the option. In such case, the transaction generally is settled 2 banking days after exercise of the option.
- Options strategies – These are established by combining 2 or more options. Their goal is to minimise costs while maintaining the options’ advantages. The client usually buys one or more options and at the same time sells one or more options.
Conditions of concluding a transaction:
- Master Agreement for Financial Transactions
- Limit for treasury operations
- Minimum volume of EUR 100,000
For more information, please contact your bank advisor.
