How does forex options expire

Gimpyron

Gimpyron

Hello all, i hope i got to the right forum,

I am interested to understand the behaviour of forex in terms of futures and options.
Few things need to be learend and so i study them. I will explain somthing i dont understand throgh exampel:

lets assume i sell eur.usd APR20, 1.12 call option for 0.00840 c as shown below:

upload_2016-3-27_2-41-36.png


First of all, 0.00840 credit in terms of forex means 840$ right? (Multiplier = 100k)
Second, lets assume the price spikes up to 1.13 by expiration, when the option expire - i end with net -100k eur.usd position??

One last thing.. if I want to hedge my naked call option, all i have to do is purchase 100k eur.usd? or should i buy the APR future? by hedge I mean that when the option expire, net net the long 100k eur.usd and the short option will offsetting each other so i end up with no position at all.

Thank you!
 
You can also load up your IB Simulated account and put on trades to see what happens with credits/margin/p&l etc. without fear of real money, although, sometimes simulated option fills don't execute. Just try it, can't hurt.
 
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Options are the same in any market.
When you sell an option, you are obliged to deliver (call) or receive (put) the base asset in the expiry date at the strike price.
So yes, if you sell a call and don't have the base asset, you will be short in that price and qty. in the expiry date if the price is higer than 1.12
 
shooter said:
You can also load up your IB Simulated account and put on trades to see what happens with credits/margin/p&l etc. without fear of real money, although, sometimes simulated option fills don't execute. Just try it, can't hurt.
More...


that's exactly my problem, simulated trades are difficult to fill and the prices, most of the time, not reliable
 
"Settlement Procedures: Option on physical delivery futures contract"
Ain't the option and the future supposed to expire in the same time?

The link helps in general view but for my micro situation i need more details, i keep reading as well
 
Gimpyron said:
"Settlement Procedures: Option on physical delivery futures contract"
Ain't the option and the future supposed to expire in the same time?

The link helps in general view but for my micro situation i need more details, i keep reading as well
More...
Not necessarily... Given that there are monthly expiries onto quarterly futures, this won't always be the case, obviously. In this particular case, for the Apr expiry option the underlying is the M6 futures contract.
 
Erik Magnus said:
Options are the same in any market.
When you sell an option, you are obliged to deliver (call) or receive (put) the base asset in the expiry date at the strike price.
So yes, if you sell a call and don't have the base asset, you will be short in that price and qty. in the expiry date if the price is higer than 1.12
More...
Except cash settled options, where no assets are delivered. The are forex cash settled options that trade on the ISE and PHLX, for example.
 
Gimpyron said:
or should i buy the APR future? by hedge I mean that when the option expire, net net the long 100k eur.usd and the short option will offsetting each other so i end up with no position at all.
More...


For "offsetting", it's probably just simpler if you work with a futures contract and the corresponding options on the same exchange (same multiplier).

For instance. Examples of futures on GLOBEX (within this year):

EUR FUT 201606 GLOBEX 125000 European Monetary Union Euro [ 6EM6 ]
EUR FUT 201612 GLOBEX 125000 European Monetary Union Euro [ 6EZ6 ]


Examples of options:

EUR FOP 20160324 1.12 C GLOBEX 125000 e.g.: 6E4H6 C1120 (expired)
EUR FOP 20160401 1.12 C GLOBEX 125000 e.g.: 6E1J6 C1120
EUR FOP 20160408 1.12 C GLOBEX 125000 etc.
EUR FOP 20160415 1.12 C GLOBEX 125000
EUR FOP 20160422 1.12 C GLOBEX 125000
EUR FOP 20160429 1.12 C GLOBEX 125000
EUR FOP 20160506 1.12 C GLOBEX 125000
[...]

Available expiration dates for these are (various trading classes: 6E 6E1 6E3 6E4 6E5 XT):

20160324
20160401
20160408
20160415
20160422
20160429
20160506
20160603
20160909
20161209
20170303

while the expiration dates for the 2 futures above are:

6EM6: 20160613
6EZ6: 20161219


Note the difference of info and exercise style (info taken from IB TWS):

European Monetary Union Euro
Product EUR
Security Type OPT
Underlying EUR.USD CASH
Contract Month APR16
Expiration APR 20 '16 15:00 EST
Strike 1.12
Right Call
Currency USD
Multiplier 100000
Exchange DTB
Trading Class OCEU
Symbol C OCEU APR 16 1120
Product Type Foreign Exchange
Settlement Method Physical Delivery
Exercise Style European

------------------------------------------------------

European Monetary Union Euro
Product EUR
Security Type FOP
Underlying ECM6 JUN 13 '16 FUT
Contract Month APR16
Expiration APR 01 '16 14:00 EST
Strike 1.12
Right Call
Currency USD
Multiplier 125000
Exchange GLOBEX
Symbol 6E1J6 C1120
Trading Class 6E1
Product Type Foreign Exchange
Settlement Method Physical Delivery
Exercise Style American


 
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