Download Foreign exchange options: An international guide to currency by Alan Hicks PDF

By Alan Hicks

Because the first variation of foreign currency innovations in 1993, buying and selling in foreign currency suggestions has passed through swift growth and now bills for an everyday turnover of a few $100 billion world-wide. This revised and increased moment version takes into consideration fresh adjustments in either marketplace perform and regulatory standards and comprises many new explanatory diagrams and functional examples.

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Additional info for Foreign exchange options: An international guide to currency options, trading and practice

Example text

In fact, one or t w o of the listed strategies could be more accurately renamed 'broker's dream'. 28 Option combinations 29 T h e O T C market has produced its o w n strategies but for a different reason, that being hedging F X e x p o s u r e . T h e option combinations still comprise Calls and Puts w i t h different strikes and amounts, but have been invented primarily for p r e m i u m reduction to reduce hedging costs. Different banks have given their o w n names to these products so, unfortunately, there are different names for the same strategy depending on w h o m one is talking to at the time.

Delta is explained in full in Chapter 7. ). T h e ratio Put spread in Fig. 8 can be looked upon as a bear Put spread w i t h twice the amount sold as bought hence a ratio of 1:2. 6). 8 cents. 8 cents). e. net short in single amount. 032. T h i s strategy is usually initiated w h e n spot is close to the higher strike and can be used w h e n a slight fall in the F X rate is expected. T h e fall at this point is not expected to continue o t h e r w i s e the outlook is for unlimited losses. If the bearish v i e w proves incorrect and the F X rate increases, then only a small, limited loss is encountered.

In Fig. 5% of the underlying F X position. 5% of the unhedged position (hence 'profit sharing f o r w a r d ) . 34 at w h i c h level the loss on the range f o r w a r d matches the loss on the profit sharing f o r w a r d . g. 34). 5% of any profits below that level. 60 for 1 cent. 8 8 8 8 Spot at Expiration This seagull profits from an increase in GBP. 30 Put. Seagull The range f o r w a r d has t w o strikes: one bought option and one sold option of equal amounts. The profit sharing f o r w a r d has one strike: one bought option and one sold option of unequal amounts.

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