Few Questions For Curr. Professionals

F

FJMcC

Hi Fellas,

Hoping there are a few guys gracious enough to take the time to answer or at least point me to where I can learn. Tried searching on my own, and there is not a lot out there.

Last week there was a huge down move (5 or 6 big figs) in some of the Yen crosses around nine in the morning. I caught a few comments about large funds supporting the market due to some large "knockout' options that were expiring. Not having an institutional background, I don't really understand this kind of stuff. Where could I go online or what books could I buy to learn more? Is this the kind of info only available to ther bigger desks?

Thanks for any help and your time.
 
Just due a search for exotic option structures to get a general feel for what they are. Knockouts are specifically a type of barrier option. If you want a way more in depth look, pick up Dynamic Hedging by Nassim Taleb. Be forewarned, this book is advanced and not an easy read.

These products are all otc, so you obtaining this type of info requires institutional contacts.

Knockouts are similar to a plain vanilla but have a barrier component attached. For instance you can buy a 90.00 strike USDJPY call with a 85 KO. If 85 trades throughout the life of the contract it immediately become worthless. By adding the KO feature you reduce the premium paid as compared to the vanilla version. Obviously, someone with deep pockets can try and defend their barrier levels.
 
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