Foreign Currency Options Trading                                 By  www.Options-Trading-Education.com
Companies doing             business      internationally  commonly make or  receive payment incurrencies foreign to      ...
Thus they must trade foreign currencies and   they engage in Forexoptions trading in orderto reduce currency risk.      ww...
Currency speculatorsseek to take advantage of changes in currency   value and may trade     currencies directly      www.O...
or hedge risk and gaininvestment leverage by      means of foreign      currency options                trading.      www....
Foreign currencies are    traded one versus             another.     www.Options-Trading-Education.com
Thus it is not the valueof the US dollar or Yen          versus gold or commodities that one   is concerned with in       ...
It is the relative valueof the dollar versus the                     Yen.      www.Options-Trading-Education.com
Fix Hedge Currency  Risk with Futures  www.Options-Trading-Education.com
Here is a quick          example.www.Options-Trading-Education.com
A Japanese airlinewishes to buy a Boeing      787 Dreamliner.     www.Options-Trading-Education.com
Payment will be made       in US dollars.    www.Options-Trading-Education.com
The plane will costaround $200 million.   www.Options-Trading-Education.com
Every one percentchange in the value of   the Yen versus thedollar will change the cost of the delivered airline by $2 mil...
In the last few months the USD YEN currency pair has varied by 5%      from high to low.     www.Options-Trading-Education...
That would translate to    a difference of $10    million in what the Japanese airline might have to pay to Boeing.      w...
There are a couple ofways that the Japanese    airline might use to  reduce currency risk.      www.Options-Trading-Educat...
The first is to buy    currency futures. Theairline will pick a futures  contract that will comedue around the time that  ...
They will not need to   spend any money with the futures contract but will obligate themselves   to purchase dollars forYE...
This strategy fixes their cost of doing business    as of the expiration  dates of their futures   contracts but has its  ...
Rather the companywill buy options and on the options expirationdates will only need to  execute the contracts involved if...
Hedge Currency Riskwith Foreign Currency      Options Trading    www.Options-Trading-Education.com
The better alternative  in this situation is tobuy calls or puts on the     USD with the YEN.      www.Options-Trading-Edu...
When to buy calls is      when the traderbelieves that the USD    will go up in valueversus the YEN by the time that payme...
When to buy puts is         when the trader  believes that the USD will fall in value by thetime in that payment is       ...
If the dollar does, infact, go up in value the    trader executes the        options contract      www.Options-Trading-Edu...
and buys dollars at the     strike price of the  contract, the original    value of the dollar       versus the Yen.      ...
As the figures noted above demonstrate, a savings of $10 millionon this sort of contract             is possible.      www...
The trader would only         buy puts in thisinstance if his company already has money set  aside in dollars to pay      ...
If the dollar plummetsin value the trader who has purchased puts on the dollar with the Yen      can simply exit his   con...
Thus he will have the same benefit is if he    had kept Yen andconverted at the time         of payment.    www.Options-Tr...
Speculators can use allof the same techniques    but do so in seeking     profit in whichever currency pair they are      ...
For more insights and    useful informationregarding options and  options trading, visitwww.Options-Trading-       Educati...
Foreign Currency Options Trading
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Foreign Currency Options Trading

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http://www.Options-Trading-Education.com - Foreign Currency Options Trading - Foreign currency options trading serves two purposes for two groups of traders.

Companies doing business internationally commonly make or receive payment in currencies foreign to their own.

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Transcript of "Foreign Currency Options Trading"

  1. 1. Foreign Currency Options Trading By www.Options-Trading-Education.com
  2. 2. Foreign currencyoptions trading serves two purposes for two groups of traders. www.Options-Trading-Education.com
  3. 3. Companies doing business internationally commonly make or receive payment incurrencies foreign to their own. www.Options-Trading-Education.com
  4. 4. Thus they must trade foreign currencies and they engage in Forexoptions trading in orderto reduce currency risk. www.Options-Trading-Education.com
  5. 5. Currency speculatorsseek to take advantage of changes in currency value and may trade currencies directly www.Options-Trading-Education.com
  6. 6. or hedge risk and gaininvestment leverage by means of foreign currency options trading. www.Options-Trading-Education.com
  7. 7. Foreign currencies are traded one versus another. www.Options-Trading-Education.com
  8. 8. Thus it is not the valueof the US dollar or Yen versus gold or commodities that one is concerned with in foreign currency options trading. www.Options-Trading-Education.com
  9. 9. It is the relative valueof the dollar versus the Yen. www.Options-Trading-Education.com
  10. 10. Fix Hedge Currency Risk with Futures www.Options-Trading-Education.com
  11. 11. Here is a quick example.www.Options-Trading-Education.com
  12. 12. A Japanese airlinewishes to buy a Boeing 787 Dreamliner. www.Options-Trading-Education.com
  13. 13. Payment will be made in US dollars. www.Options-Trading-Education.com
  14. 14. The plane will costaround $200 million. www.Options-Trading-Education.com
  15. 15. Every one percentchange in the value of the Yen versus thedollar will change the cost of the delivered airline by $2 million. www.Options-Trading-Education.com
  16. 16. In the last few months the USD YEN currency pair has varied by 5% from high to low. www.Options-Trading-Education.com
  17. 17. That would translate to a difference of $10 million in what the Japanese airline might have to pay to Boeing. www.Options-Trading-Education.com
  18. 18. There are a couple ofways that the Japanese airline might use to reduce currency risk. www.Options-Trading-Education.com
  19. 19. The first is to buy currency futures. Theairline will pick a futures contract that will comedue around the time that the airplane will be delivered. www.Options-Trading-Education.com
  20. 20. They will not need to spend any money with the futures contract but will obligate themselves to purchase dollars forYEN at the contract price on the settlement date. www.Options-Trading-Education.com
  21. 21. This strategy fixes their cost of doing business as of the expiration dates of their futures contracts but has its drawbacks. www.Options-Trading-Education.com
  22. 22. Rather the companywill buy options and on the options expirationdates will only need to execute the contracts involved if doing so is profitable. www.Options-Trading-Education.com
  23. 23. Hedge Currency Riskwith Foreign Currency Options Trading www.Options-Trading-Education.com
  24. 24. The better alternative in this situation is tobuy calls or puts on the USD with the YEN. www.Options-Trading-Education.com
  25. 25. When to buy calls is when the traderbelieves that the USD will go up in valueversus the YEN by the time that payment is due. www.Options-Trading-Education.com
  26. 26. When to buy puts is when the trader believes that the USD will fall in value by thetime in that payment is due. www.Options-Trading-Education.com
  27. 27. If the dollar does, infact, go up in value the trader executes the options contract www.Options-Trading-Education.com
  28. 28. and buys dollars at the strike price of the contract, the original value of the dollar versus the Yen. www.Options-Trading-Education.com
  29. 29. As the figures noted above demonstrate, a savings of $10 millionon this sort of contract is possible. www.Options-Trading-Education.com
  30. 30. The trader would only buy puts in thisinstance if his company already has money set aside in dollars to pay for the plane. www.Options-Trading-Education.com
  31. 31. If the dollar plummetsin value the trader who has purchased puts on the dollar with the Yen can simply exit his contract and take the profit. www.Options-Trading-Education.com
  32. 32. Thus he will have the same benefit is if he had kept Yen andconverted at the time of payment. www.Options-Trading-Education.com
  33. 33. Speculators can use allof the same techniques but do so in seeking profit in whichever currency pair they are trading. www.Options-Trading-Education.com
  34. 34. For more insights and useful informationregarding options and options trading, visitwww.Options-Trading- Education.com. www.Options-Trading-Education.com

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