Introduction

FX Option refers the right to buy or sell underlying currency at the agreed price in the future after payment of the premium. As a buyer of FX option, client can choose a beneficial exchange rate between contracted rate and the spot rate at maturity to delivery, the option seller has the obligation to fulfill the duty. As the compensation the seller of the FX option can gain the premium from the option buyer at the beginning of the transaction.

Main Risk

The option buyer maximum loss is its option premium, the option seller maximum loss is unlimited while the market price move along with the option buyer’s view

1. Participating Forward

A structured product which is composed by two options can lock up the exchange rate. It is similar to plain forward.

2. Capped Forward

A structured product which is composed by three options, may to some extent, lock up the FX risk and generate a more favorable exchange rate than regular FX forward.

3. Tracker Forward

A structured product which is composed by three options can limit the potential MTM loss from regular FX forward deal.

4. Risk Reversal

A structured product which is composed by two options can lock up the exchange rate within a specific range.

5. Call/Put Spread

A structured product which is composed by two options can reduce the premium than regular buy-option, and at the same time the profit of the buy-option is limited.