1 Finance instruments Currency Vanilla options Introduction Currency Barrier options

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Finance instrumentsFinance instruments

Currency Vanilla options

Introduction

Currency Barrier options

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STLONG CALL

Payoff

k

IntroductionIntroduction

Long position = The holder have the right to purchase the underline asset = Paying a premium

Not inclu

de pre

mium

Call option

3

KST

Payoff

SHORT CALL

Short position = The writer obligate to sell the underline asset = Getting a premium

Not inclu

de pre

mium

Call option


4

ST

LONG PUT

Payoff

k

Long position = The holder have the right to sell the underline asset = Paying a premium

Not inclu

de pre

mium

Put option


5

ST

SHORT PUT

Payoff

k

Short position = The writer obligate to buy the underline asset = Getting a premium

Not inclu

de pre

mium

Put option


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ST

Payoff

ST

Payoff

K ST

Payoff

ST

Payoff

The options allow us to split /brake the risk of

the underline asset

NOT INCLUE PRIM

UM


Summary

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Example

Spot: 3.5406

1,000,000 : ILS Amount

Premium : %2

Expiry : 3 months

0Strike: 3.7

Currency derivativesCurrency derivatives

Buying call Euro put Ils

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EUR > 3.7 The option will be

exercised

EUR < 3.7

The option will expired

Three months later

IF



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שער יורו רווח בש"ח4.400 169,189 4.300 142,162 4.200 115,135 4.100 88,108 3.800 7,027 3.774 - 3.73 )11,892(

3.700 )20,000( 3.400 )20,000( 3.100 )20,000( 2.500 )20,000(

Euro<3.7

Euro>3.7

3.774 =3.7x(1.02)= breakeven

Euro ILS profits

Sensitivity analysis



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Euro

payoff Ils

3.7

3.774%2(20,000)

Graphical presentation



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Buying $ CALL strike X

Selling $ PUT strike Y

X>Y

LONG

The two options for the same expiry date


Collar option

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Example


Collar option

% ( Buying $ call, Ils put strike 4.06 ) 2

% (Selling $ put, Ils call strike 3.957 ) 1.5

Call Put

4.030 4.03 Spot246,305 252,717 $

1,000,000 1,000,000 Ils4.06 3.957 Strike

3 months 3 months Expiry2.00% 1.50% Premium

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$

Payoff

Ils

3.957 4.06

%0.54.0803

Graphical presentation


Collar option

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$ Stretagy Sell PUT$ Buy CALL $

4.300 54,113 15,000 39,113 4.270 46,724 15,000 31,724 4.141 15,000 15,000 - 4.080 0 15,000 (15,000) 4.060 (5,000) 15,000 (20,000) 4.050 (5,000) 15,000 (20,000) 4.030 (5,000) 15,000 (20,000) 4.020 (5,000) 15,000 (20,000) 3.957 (5,000) 15,000 (20,000) 3.937 (10,000) 10,000 (20,000) 3.898 (20,000) - (20,000) 3.800 (44,677) (24,677) (20,000) 3.700 (69,948) (49,948) (20,000) 3.600 (95,220) (75,220) (20,000) 3.500 (120,492) (100,492) (20,000)

Sensitivity analysisCurrency derivativesCurrency derivatives

Collar option

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Buying call strike 4.1 - (%0.5)

Selling call 4.2- )%0.3(

The same expiry date

Payoff

4.1 4.2

Bull Spreadwith Call

$%0.2


Bull spread

Example

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Buying call strike Y

Selling call strike XThe same expiry date

OR

Pay

off

XY

Bear Spread


Bear spread

Buying put strike Y

Selling put strike X

The same expiry date

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¥/$ ¥ / $ Buying forward

Delivery : 3 monthsForward rate 106.5


Covered call

107.71 spot9,225 $

1.21 pips3 months expiry

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getting premium


Covered call

¥/$ Writing $ call ¥ put

107.4 spot9,225 $

1,000,000 yen

108.4 strike3 months expiry

1.30% premium

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Covered call Sensitivity analysis$ price Covered call buy forward sell call 114.000 30,527.68 69,188.19 )38,661( 112.000 30,527.68 50,738.01 )20,210( 109.809 30,527.68 30,527.68 - 111.000 30,527.68 41,512.92 )10,985( 108.400 30,527.68 17,527.68 13,000 107.300 20,380.07 7,380.07 13,000 106.500 13,000.00 - 13,000 105.000 )837.64( )13,837.64( 13,000 104.000 )10,062.73( )23,062.73( 13,000

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payoff

¥

30,527

$106.5

108.4


Covered callGraphical presentation

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Option that have an embedded price level ( barrier ), which if reached will either create a vanilla option

or eliminate the existence of a vanilla option

Exotic option Exotic option

Barrier options

Definition

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Dollar Call / Canadian Put strike 1.55 expiring in 1 month that has a knock out trigger at 1.50

Spot rate:1.54


Barrier options

ExampleBarrier is out-of-the -money option with respect to the strike

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Barrier optionsExample

TRIGGER

payo

ff

1.55 $1.50

1.54

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Dollar Call / Canadian Put strike 1.55 expiring in 1 month that has a knock in trigger at 1.50

Spot rate:1.54


Barrier options

ExampleBarrier is out-of-the -money option with respect to the strike

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Barrier optionsExample

TRIGGER

payo

ff

1.55 $1.50

1.54

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Dollar Call / Canadian Put strike 1.50 expiring in 1 month that has a knock out trigger at 1.56

Spot rate:1.54


Barrier options

Barrier is in-the -money option with respect to the strike

Reverse knock out

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Barrier options

TRIGGER

payo

ff

1.50 $1.561.54

Reverse knock out

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Dollar Call / Canadian Put strike 1.50 expiring in 1 month that has a knock in trigger at 1.56

Spot rate:1.54


Barrier options

Barrier is in-the -money option with respect to the strike

Reverse knock in

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Barrier options

TRIGGER

payo

ff

1.50 $1.561.54

Reverse knock in

Documents

1 Finance instruments Currency Vanilla options Introduction Currency Barrier options