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Foreign Exchange (FX) Options
At a Glance
Potential to enhance returns
By selling "put" options while waiting to buy a currency at a lower price, or by selling "call" options while waiting to sell a currency at a higher price
Not suitable for all investors
Options carry significant risks and are only recommended for experienced investors
Types of Options
There are 2 types of options:
- A "Put" option gives the buyer the right but not the obligation to sell the underlying currency at a predetermined price.
- A "Call" option gives the buyer the right but not the obligation to buy the underlying currency at a predetermined price.
In both cases the seller of the option is paid a premium by the buyer of the option. Options are not suitable for all investors, as they carry significant risks. Only recommended for experienced investors.
Benefits & Risks
Potential to enhance returns:
- By selling put options while waiting to buy a currency at a lower price
- By selling call options while waiting to sell a currency at a higher price
Selling an option generally entails considerably greater risk than purchasing options and a seller of options may sustain a loss well in excess of the amount of the premium received.
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