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HezBallah
Registered: Jan 2008
Posts: 136 |
09-29-12 08:42 PM
Hey everyone,
I had a question regarding foreign currency contracts.
My book is a bit confusing regarding the structure of currency contracts so I thought I'd ask the community a simple question:
So on the PHLX, the contract size is 10k units of currency except for japanese Yen which cover 1,000,000. This contract size is different from the multiplier which is still 100? Does multiplier only refer to the option premium? Is there a logical reason why the contract size is 10k?
How does one read this:
1 PHLX XDE (Euro) Nov 145 Call @ 2.10
Every contract allows you to buy 10k euros at a price of 145 cents per euro? If options contracts were exercise-able (they're not, they are US dollar cash settled), the option would be worth 14500 dollars?
Why are these contracts worth 10k and not just 100 like equity options contracts? What does a Japanese PHLX option look like?
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diaoptions
Registered: Aug 2011
Posts: 392 |
09-30-12 05:11 AM
Quote from HezBallah:
How does one read this:
1 PHLX XDE (Euro) Nov 145 Call @ 2.10
Every contract allows you to buy 10k euros at a price of 145 cents per euro? If options contracts were exercise-able (they're not, they are US dollar cash settled), the option would be worth 14500 dollars?
That position will cost you $210.00. The option would be worth zero if the Euro is $1.45 at expiry. Break even at $1.4710 and a profit anything above $1.4710. The Euro is at 1.286 now, so is the 145 call very far OTM? I don't trade it so I don't know if that sort of move is too far fetched.
Another way to play the Euro is the CurrencyShares Euro Trust (FXE) http://finance.yahoo.com/q?s=FXE
EDIT: Looking at the November FXE options the 145 strike is DOTM, I would pick a strike closer to ATM. Perhaps the 133.
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diaoptions
Registered: Aug 2011
Posts: 392 |
09-30-12 08:45 PM
Quote from HezBallah:
Why is that relevant here?
I would think that comparing options on Euro futures and FXE is relevant. This is the option forum on Elitetrader.
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HezBallah
Registered: Jan 2008
Posts: 136 |
10-02-12 01:56 AM
Sorry, I wasn't very clear. My question is that my study text says that options contracts are for 10,000 units of currency. What does that mean in the option series? Is 10000 the multiplier?
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HezBallah
Registered: Jan 2008
Posts: 136 |
10-02-12 02:08 AM
The reason why I'm confused is for regular equity options, say 1 ABC Jan 50 call @ 4, the multiplier is :
"the number of shares of the underlying stock are included in the options contract. For most stock options this is 100 shares."
So for equity options, the multiplier refers to the underlying size if the contract were exercised. It's used to determine the total cost of the contract to the buyer.
For currency options, a lot of the contract sizes seem to be 10k. Does that mean the multiplier is 10k? If so, why is the premium multiplier only 100?
So if a euro contract was:
1 PHLX XDE Nov 145 Call @ 2.10
What does this mean? Where does the 10k come in?
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