Currency options

In this lesson

1. 0:00 Currency options: rights without obligation
2. 0:40 Call options and put options explained
3. 1:19 Options versus futures: flexibility advantage
4. 2:15 Over-the-counter and exchange-traded options
5. 3:00 Four-step setup for options calculations
6. 4:10 Choosing the strike price strategically
7. 5:18 Decision point: exercise or let lapse
8. 6:00 Calculating transaction outcomes at maturity
9. 7:00 Macron Co case study: selling USD receivable
10. 8:30 Determining puts versus calls for the transaction
11. 9:36 Strike price selection and premium adjustment
12. 11:27 Working through the final calculation

About this lesson

You'll discover the key differences between call options (the right to buy) and put options (the right to sell), understand why banks charge a premium for this flexibility, and explore the two main types: over-the-counter options (bespoke and private) and exchange-traded options (standardised and transparent). The lesson walks you through the four-step process for setting up an options calculation: determining whether to buy or sell currency, calculating the number of contracts needed, selecting the appropriate expiry date, and choosing the strike price that benefits your position most. A critical advantage of options is that you'll never face a loss like you might with futures—you simply let the option lapse if exchange rates move favourably. You'll learn how to calculate the euro value of a transaction when the option is exercised, accounting for the premium payable regardless of whether you exercise or lapse. Using a worked example with a French company hedging a $15 million sale to a US customer, you'll see how to navigate the tables of premiums and strike prices, convert premiums from cents to euros, and determine which exercise price maximises your income or minimises your outflow. The lesson emphasises practical exam technique: if you're unsure which strike price to use, you can quickly test each one or make an educated guess and still earn follow-through marks for your working.

Duration: 13m