InvestorQ : What are currency option contracts and how are they structured?
Debbie Mascarenhas made post

What are currency option contracts and how are they structured?

Answer
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Crowny Pinto answered.
2 years ago


Just as you can trade futures in currency pairs, you can also trade options in currency pairs. You will get options of different strikes with most of the volumes concentrated around the near ITM and near OTM options only. Options are limited risk instruments and that is what makes the attractive to traders.

Symbol

USDINR

EURINR

GBPINR

JPYINR

Market Type

N

Instrument Type

OPTCUR

OPTCUR

OPTCUR

OPTCUR

Option Type

Premium style European Call & Put Options

Premium

Premium quoted in INR

Unit of trading

1 contract unit denotes USD 1000

1 contract unit denotes EUR 1000

1 contract unit denotes GBP 1000

1 contract unit denotes JPY 100000

Underlying / Order Quotation

The exchange rate in Indian Rupees for US Dollars

The exchange rate in Indian Rupees for Euro

The exchange rate in Indian Rupees for Pound Sterling

The exchange rate in Indian Rupees for 100 Japanese Yen

Tick size

0.25 paisa i.e. INR 0.0025

Trading hours

Monday to Friday 9:00 a.m. to 5:00 p.m. IST

Contract trading cycle

3 serial monthly contracts followed by 3 quarterly contracts of the cycle March/June/September/December

No. of Strikes

Minimum 12 In-the-money, Minimum 12 Out-of-the-money and 1 Near-the-money. (25 CE and 25 PE)

Strike price intervals

INR 0.25

INR 0.25

INR 0.25

INR 0.25

Price Operating Range

A contract specific price range based on its delta value is computed and updated on a daily basis

Quantity Freeze

10,001 or greater

Base price

Theoretical price on the 1st day of the contract. On all other days, DSP of the contract.

Initial margin

SPAN Based Margin

Extreme loss margin

1.5% of Notional Value of open short position

Settlement of premium

Premium to be paid by the buyer in cash on T+1 day

Settlement

Daily settlement: T + 1 Final settlement: T + 2

Expiry/Last trading day

Two working days prior to the last business day of the expiry month at 12:30 pm.

Final settlement day

Last working day (excluding Saturdays) of the expiry month. The last working day will be the same as that for Interbank Settlements in Mumbai.

Position limits

Mode of settlement

Cash settled in Indian Rupees

Final settlement price (FSP)

RBI reference rate on the date of the expiry of the contact

When you buy options, it only attracts the premium margins. That is your total cost and also your worst case loss in the market. However, when you sell options, your margining will be exactly like you bought or sold futures on that pair.