FX Position Management

FX Options on Futures

FX options on futures offer the opportunity to limit loss, while maintaining the potential of profiting from a favorable move in a currency. FX options on futures can be thought of as a type of insurance policy, in which the option buyer pays a price, known as premium, in exchange for the right to buy or sell the specified FX futures contract within a given period of time, at the strike or exercise price. However, if the underlying FX futures contract never hits a level that makes it profitable for the option buyer to exercise his or her right, then the option would expire. Chicago Mercantile Exchange® (CME) FX “American style” options may be exercised before or on the expiration day. When a trader initiates a purchase of a call or put, margin is not required, because the premium (the price paid for the option) is the maximum possible loss for a long option position.

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