|
|
|
Forum Newbie
Group: Forum Members
Last Login: 11/29/2010 10:03:43 AM
Posts: 2,
Visits: 4
|
|
Hi Steve,
I'm new to FX options and I've got a basic question:
in which currency is the option premium expressed?
In particular, I'm based in Europe and I'm looking at EUR/USD options: is the price i can see using your option calculator in EUR or in USD?
And is this a commonly used pricing convention? (i.e. price expressed usually in base currency units)
Thanks in advance for your help
Alberto
|
|
|
|
|
Forum Guru
Group: Administrators
Last Login: 6/13/2011 7:57:49 PM
Posts: 54,
Visits: 375
|
|
Hi Alberto,
ISE FX Options can be traded with the USD as the base currency relative to EUR, or can be traded with the EUR as the base currency and USD as the quote currency.
Using the EUR/USD convention the ISE symbol is EUU
Using the USD/EUR convention the ISE symbol is EUI
Using either convention the premiums are quoted in USD and cash settlement (if applicable) will be paid in USD.
I hope that helps.
Steve
|
|
|
|
|
Forum Newbie
Group: Forum Members
Last Login: 11/29/2010 10:03:43 AM
Posts: 2,
Visits: 4
|
|
Thanks Steve,
so, please correct me if i'm wrong, a EUR.USD call option will give me the ight to buy 100€ paying X $ (where X is the strike) and will cost me Y $. At expiration, if i will exercise it, i will get the difference between the EUR.USD spot rate (in this case time 100) and the strike. Am I right?
Thanks again,
Regards
Alberto
|
|
|
|
|
Forum Guru
Group: Administrators
Last Login: 6/13/2011 7:57:49 PM
Posts: 54,
Visits: 375
|
|
Alberto,
The contract size is dictated by the exchange rate. At an exchange rate of 1.31, the contract size is worth $13,100 USD. I find that it easier to talk in terms of USD since the premiums are paid in USD and the settlement is in USD.
You can select ITM, ATM, or OTM creating differing risk reward tradeoffs.
|
|
|
|