Fx options terminology

A currency option (also known as a forex option) is a contract that gives the buyer the right, but not the obligation, to buy or sell a certain currency at a specified.
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Chapter 19 Options. Define options and discuss why they are used. Describe how options work and give some basic strategies. Explain the valuation of options. Intrinsic value - profit that could be made if the option was immediately exercised — Call: stock price - exercise price. All rights reserved. Similar presentations. Upload Log in.

FX options explained

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Presentation on theme: "FX Derivatives 2. Options: Brief Review Terminology Major types of option contracts: - calls gives the holder the right to buy the underlying. Download ppt "FX Derivatives 2. About project SlidePlayer Terms of Service. Feedback Privacy Policy Feedback. Intrinsic Value: Intrinsic value refers to the amount if any an option is in-the-money. Index options are usually cash-settled option contracts. It implies ownership of something. Out-of-the-money OTM : This refers to the relationship between the strike price and the current stock price.

An option is considered to be out-of-the-money if exercising the rights associated with the option contract has no obvious benefit for the contract owner. For call options, the market price is below the strike price. For put options, the market price is above the strike price.

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Puts: A put is one type or flavor of an option. For each put contract you buy, you have the right but not the obligation to sell shares of a specific security at a specific price within a specific time frame. A good way to remember this is: You have the right to put stock to somebody.

Premium: The price paid or received for an option in the marketplace. For example, stock option premiums are quoted on a price-per-share basis, so the total premium amount paid by the buyer to the seller in any option transaction is equal to the quoted amount times underlying shares. Option premium consists of intrinsic value if any plus time value.


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Watch this video about the basic anatomy of a stock options quote. If you do, you may have additional obligations later. If we assume stocks have a simple normal price distribution, we can calculate what a one-standard-deviation move for the stock will be. This comes in handy when figuring out the potential range of movement for a particular stock. Most pricing models assume a log normal distribution. Strike Price: This is the pre-agreed price per share at which stock may be bought or sold under the terms of an option contract. Some traders call this the exercise price. Strike price is one of the five basic parts of a standard stock options quote.

Convertible bonds A convertible bond issued by a public company is one that starts as a bond but that can also be converted into ordinary shares in that company at any time before the bond matures, and at a previously specified price…. Cost of capital Making a business successful is simply down to ensuring you earn more than your costs….

Foreign exchange option

Covered bonds A bond is an IOU issued by a company, typically offering a fixed rate of interest and a fixed date for repayment by the issuer…. Credit default swap Anyone who owns a bond faces two main risks. The first is that the price drops and the second is that the issuer goes bust…. Credit rating Most bonds are allocated a credit rating to indicate to an investor the likelihood of a subsequent default….

Currency risk This is the type of risk that comes from the change in price of one currency against another…. Cyclical stocks The performance of cyclical stocks is heavily dependent on the economic cycle — they do well when the economy is booming but very badly when it falls off a cliff…. Daily repricing Daily repricing is a feature of exchange-traded funds ETF and can affect your expected performance, especially on inverse products. Debt swap There are several possible ways in which a debt swap can be done. However, the aim is usually the same — to refinance a borrower and strengthen its balance sheet.

Delta One Delta One refers to the way a bank hedges its long and short exposures across a portfolio of investments. Depositary receipt A depository receipt allows investors to access overseas shares in their own market and currency. Dilution In the world of finance, dilution means something is being watered down, typically earnings per share.

Discount rate The discount rate is used to calculate how much the expected future income from an investment over a given period of time is worth right now. Discounted cash flow Discounted cash flow is simply a method of working out how much a share is fundamentally worth based on the present or discounted value of expected future cash flows.

Dividend cover Dividend cover measures the number of times greater the net profits available for distribution are than the dividend payout. Dividend yield The dividend per share total dividends paid out divided by total number of shares expressed as a percentage is referred to as the dividend yield.

Diversification Diversification is the process of dividing your wealth between different investments to avoid being too reliant on any single one doing well. Dogs of the Dow Fans of this theory say that bargains can be spotted by looking for high dividend yields — the annual dividend as a proportion of the current share price. Dow Theory Dow theory is often used as an indicator of when a bear market may be about to start.

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Economic indicators Economic indicators are statistical measures that reveal general trends in the economy. Equity risk premium When buying a security such as a share, every investor should have an expected return in mind. ESG investing ESG stands for environmental, social and corporate governance, the areas in which good behaviour is particularly sought.

Eurobond This describes any international corporate or government bond that is denominated in a currency held outside its country of origin. Exchange-traded fund ETF An exchange-traded fund ETF is an equity-based product combining the characteristics of an individual share with those of a collective fund. FCF yield The free cash flow FCF yield is a way to decide whether a firm is cheap or expensive based on its cash flows rather than, say, its earnings.

Final salary and money purchase pensions With a money purchase scheme, the size of your pension depends entirely on the value of your fund when you retire. Fiscal policy Fiscal policy includes any measure that the national government takes to influence the economy by budgetary means. Flipping Flipping is when you make an offer on a property and then either look to secure a new buyer at a higher price before you close on the deal, or wait for it to rise in value, then sell on. Floating rate note A floating rate note is a form of security that carries a variable interest rate which is adjusted regularly by a margin against a benchmark rate such as LIBOR.

Foreign exchange reserves Foreign exchange reserves are stockpiles of foreign currencies held by governments. Free cash flow Free cash flow is a pure measure of the cash a company has left once it has met all its operating obligations.


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Free cash flow per share Free cash flow per share takes the annual cash flow available to pay dividends and divides by the number of ordinary shares in issue. Free cash flow yield Free cash flow yield FCFY is a ratio used to work out the cash flow return on a share as a percentage.