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Call: Purchasing a
call gives you a specific locked in price at which you have the
right but not the obligation to buy a contract that you expect to
increase in value. You would purchase a call option if you are
looking for the price of the currency to
rise.
Put : Purchasing a
put gives you a specific locked in price at which you have the right
but not the obligation to sell a contract that you expect to
decrease in value. You would purchase a put options if you are
looking for the price of the currency to
decline.
Premium: The price
of the option.
Expiration Date:
Options expire. You must sell on or before the expiration
date.
Exercise: You can
either sell your option, or exercise your right to buy (in the case
of a call) or sell (in the case of a put) the underlying instrument
at the strike price.
Strike Price: The
price at which you can “exercise” your option. This price is based
on the underlying instrument. Call-option buyers have the right to
buy the underlying instrument at the strike price. Put-option buyers
have the right to sell at the strike
price.
In the Money:
Calls are “in the money” if the price of the underlying instrument
is HIGHER than the strike price. Puts are “in the money” if the
price of the underlying instrument is LOWER than the strike
price.
At the Money: When
the price of the underlying instrument is identical to the strike
price. Same for both puts and
calls.
Out of the Money:
Calls are “out of the money” if the price of the underlying
instrument is LOWER than the strike price. Puts are “out of the
money” if the price of the underlying instrument is HIGHER than the
strike price.
When you purchase a Forex
Option, you may sustain a total loss of the pemium and all
transaction costs. There are no guarantees of
profit or freedom from loss in Foreign Exchange
Trading. Purchasers and sellers of
foreign exchange options contracts should familiarize themselves
with the type of option (i.e. put or call) which they contemplate
trading and the associated risks. Trader should calculate the extent
to which the value of the options must increase for their positions
to become profitable, taking into account the premium, commission
and all transaction costs. The purchaser of foreign exchange options
contracts may offset, or exercise the options, or allow the options
to expire. If the option is on a spot foreign currency
contract, the purchaser will acquire a currency position with
associated liabilities for margin (see the currency spot market
section above). If the purchased options expire worthless, the
Trader will suffer a total loss of Trader’s investment, which will
consist of the option premium plus commission and transaction costs.
If the Trader is contemplating purchasing deep-out-of-the-money
options, Trader should be aware that the chance of such options
becoming profitable ordinarily is remote.
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