Option strategies
A strategy made up of several standalone, unique options transactions. Thanks to the numerous combinations that can be developed, the payout and risk profile of currency option strategies can be fully individualized.
A more favourable level than the forwards price can be achieved by assuming a certain knock-out level. A double KO forward/ improved forwards transaction is a structure consisting of two options (one put and one call) with the same parameters (maturity, knock-out price level).
Example transaction for exporters to sell EUR against HUF
- Simultaneously buy a put option and sell a call option at the same strike price (strike).
- You assume a euro selling obligation and acquire the right to sell at the same time.
- Thanks to the option strategy, if the EUR/HUF exchange rate does not reach the 324 termination level during the term, it will sell at 333.50 against the forint at maturity.
| Transaction parameters | |
|---|---|
| Duration | 6 months |
| Currency pair | EUR/HUF |
| Amount | EUR 500,000 |
| Spot rate EUR/HUF at the time of pricing | 329.00 (Reuters: EURHUF=D3) |
| Strike (right and obligation to sell) | 333.50 |
| Knock-out | 324.00 |
- Transaction parametersTransaction parameters
- Duration6 months
- Currency pairEUR/HUF
- AmountEUR 500,000
- Spot rate EUR/HUF at the time of pricing329.00 (Reuters: EURHUF=D3)
- Strike (right and obligation to sell)333.50
- Knock-out324.00
Example transaction for importers to buy EUR against HUF
- Simultaneously buy a call and sell a put option at the same strike price (strike).
- You take on a euro buying obligation and acquire the right to buy at the same time.
- Thanks to the option strategy, if the EUR/HUF exchange rate does not reach the 340 termination level during the term, you will buy euro at 327.00 against the forint at maturity.
| Transaction parameters | |
|---|---|
| Duration | 6 months |
| Currency pair | EUR/HUF |
| Amount | EUR 500,000 |
| Spot rate EUR/HUF at the time of pricing | 329.00 (Reuters: EURHUF=D3) |
| Strike (right and obligation to buy) | 327.00 |
| Knock-out | 340.00 |
- Transaction parametersTransaction parameters
- Duration6 months
- Currency pairEUR/HUF
- AmountEUR 500,000
- Spot rate EUR/HUF at the time of pricing329.00 (Reuters: EURHUF=D3)
- Strike (right and obligation to buy)327.00
- Knock-out340.00
Benefits
- The future bid/ask price is more favourable than the classic forwards rate.
- The parameters of the transaction can be flexibly adjusted.
- It can be closed at any time before expiry with a reverse transaction, the result of which depends on the current market situation.
Risks
- The transaction entails an obligation for the client: you are obliged to buy/sell at the fixed price level even at the lower / higher maturity level than the fixed price, if the market price has not reached the knock-out level of the option, i.e. you can even realize unlimited exchange rate losses.
- When the market price reaches the knockout level, the price will cease to be covered.
- If you close the deal with a reverse trade during the term, you may
incur unlimited losses depending on the current market situation.
Range forwards provide the forwards minimum and maximum strike price, i.e. fixed by the range edges, and in the intermediate range you can make currency changes at the market rate at maturity. A range forwards strategy with a knock-out level improves the available price range.
Example transaction for exporters
- Simultaneously buy a put option or sell a call option at a different strike price.
- Under the resulting option structure, it simultaneously assumes a euro selling obligation (upper band edge) and acquires the right to sell (lower band edge).
| Transaction parameters | |
|---|---|
| Duration | 6 months |
| Currency pair | EUR/HUF |
| Amount | EUR 500,000 |
| Spot rate EUR/HUF at the time of pricing | 329.00 (Reuters: EURHUF=D3) |
| Range forward upper range edge (obligation to sell) | 335.00 |
| Range forward lower range edge (right to sell) | 327.00 |
| Knock-out | 320.00 |
- Transaction parametersTransaction parameters
- Duration6 months
- Currency pairEUR/HUF
- AmountEUR 500,000
- Spot rate EUR/HUF at the time of pricing329.00 (Reuters: EURHUF=D3)
- Range forward upper range edge (obligation to sell)335.00
- Range forward lower range edge (right to sell)327.00
- Knock-out320.00
Possible outcomes at maturity
- The EUR/HUF exchange rate does not reach the termination level of 320 during the term, and at maturity the EUR/HUF exchange rate is below 327 -> sells euros against HUF at the rate of 327, making use of the option sell right.
- The EUR/HUF exchange rate does not reach the termination level of 320 during the term and at maturity the EUR/HUF exchange rate is above 335 -> you have to sell the euro against HUF at 335 due to the option sell obligation.
- The EUR/HUF exchange rate does not reach the 320 termination level during the term, and at maturity the EUR/HUF exchange rate is between 327 and 335 -> sells the euro at the current market rate against forints.
- The EUR/HUF exchange rate reaches the termination level of 320 during the term -> the option strategy will be terminated and you will no longer have any option rights or obligations.
Example transaction for importers
- Simultaneously buy a call and sell a put option at a different strike price.
- Under the resulting option structure, it simultaneously assumes a euro buying obligation (lower band edge) and acquires a right to buy (upper band edge).
| Transaction parameters | |
|---|---|
| Duration | 6 months |
| Currency pair | EUR/HUF |
| Amount | EUR 500,000 |
| Spot rate EUR/HUF at the time of pricing | 329.00 (Reuters: EURHUF=D3) |
| Range forward upper range edge (right to buy) | 334.00 |
| Range forward lower range edge (obligation to buy) | 327.00 |
| Knock-out | 340.00 |
- Transaction parametersTransaction parameters
- Duration6 months
- Currency pairEUR/HUF
- AmountEUR 500,000
- Spot rate EUR/HUF at the time of pricing329.00 (Reuters: EURHUF=D3)
- Range forward upper range edge (right to buy)334.00
- Range forward lower range edge (obligation to buy)327.00
- Knock-out340.00
Possible outcomes at maturity
- The EUR/HUF exchange rate does not reach the termination level of 340 during the term and at maturity the EUR/HUF exchange rate is above 334 -> buys euro against HUF at the exchange rate of 334, making use of the option to buy.
- The EUR/HUF exchange rate does not reach the termination level of 340 during the term and at maturity the EUR/HUF exchange rate is below 327 -> you have to buy euros against HUF at 327 due to your option buying obligation.
- The EUR/HUF exchange rate does not reach the termination level of 340 during the term, and at maturity the EUR/HUF exchange rate is between 327 and 334 -> you buy euros at the current market exchange rate against forint.
- The EUR/HUF exchange rate reaches the termination level of 340 during the term -> the option strategy ceases to exist and you will no longer have any option rights or obligations.
Benefits
- The level of buying and selling of currency at maturity is pre-guaranteed (for a strategy without knock-out level).
- The parameters of the transaction can be flexibly adjusted.
- It can be closed at any time before expiry with a reverse transaction, the result of which depends on the current market situation.
Risks
- Knock-out tier range forwards: if the market price reaches the knock-out level at any time during the term for an option with an American-type price limit, or at the expiry of an option with a European-type price limit, the option transaction will be terminated.
- If you close the deal with a reverse trade during the term, you may
incur unlimited losses depending on the current market situation.
The strangle option strategy involves two options, selling or buying a put and a call option at the same time, with the same face value and the same deadline.
- If you sell a strangle option strategy, your expectation is that volatility will drop. Your profit can be maximized if the price remains within the range delimited by the strike price of the two options at maturity.
Example transaction for selling EUR/HUF strangle
| Transaction parameters | |
|---|---|
| Duration | 6 months |
| Currency pair | EUR/HUF |
| Amount | EUR 500,000 |
| Spot rate EUR/HUF at the time of pricing | 329.00 (Reuters: EURHUF=D3) |
| Strangle upper range edge (obligation to sell) | 340.00 |
| Strangle lower range edge (obligation to buy) | 320.00 |
| Volume-based option premium in fillér | 180 fillér |
| Option premium expressed in HUF | HUF 900,000 |
- Transaction parametersTransaction parameters
- Duration6 months
- Currency pairEUR/HUF
- AmountEUR 500,000
- Spot rate EUR/HUF at the time of pricing329.00 (Reuters: EURHUF=D3)
- Strangle upper range edge (obligation to sell)340.00
- Strangle lower range edge (obligation to buy)320.00
- Volume-based option premium in fillér180 fillér
- Option premium expressed in HUFHUF 900,000
Possible outcomes at maturity
- EUR/HUF exchange rate is above 340 at maturity -> Due to the obligation to sell the euro, you have to sell the euro at a rate of 340 against the forint. The final result of the option strategy: (strike price - current EUR/HUF market rate) * option face value + 900,000 HUF
- EUR/HUF exchange rate is below 320 at maturity -> Due to the obligation to buy the euro, you have to buy euros at a rate of 320 against the forint. The final result of the option strategy: (current EUR/HUF market rate - strike price) * option face value + 900,000 HUF
- EUR/HUF exchange rate is between 320 and 340 -> None of the options will be called, so you will not be subject to any obligation to buy or sell. The final result of the option strategy: +900,000 HUF
- When you buy a strangle option strategy, your expectation is that volatility will increase. The transaction will be profitable if there is either a downward movement from the lower strike price or upwards from the upper strike price greater than the amount of option premiums.
Example transaction for buying EUR/HUF strangle
| Transaction parameters | |
|---|---|
| Duration | 6 months |
| Currency pair | EUR/HUF |
| Amount | EUR 500,000 |
| Spot rate EUR/HUF at the time of pricing | 329.00 (Reuters: EURHUF=D3) |
| Strangle upper range edge (right to buy) | 335.00 |
| Strangle lower range edge (right to sell) | 325.00 |
| Volume-based option premium in fillér | 625 fillér |
| Option premium expressed in HUF | HUF 3,125,000 |
- Transaction parametersTransaction parameters
- Duration6 months
- Currency pairEUR/HUF
- AmountEUR 500,000
- Spot rate EUR/HUF at the time of pricing329.00 (Reuters: EURHUF=D3)
- Strangle upper range edge (right to buy)335.00
- Strangle lower range edge (right to sell)325.00
- Volume-based option premium in fillér625 fillér
- Option premium expressed in HUFHUF 3,125,000
Possible outcomes at maturity
- EUR/HUF exchange rate is above 335 at maturity -> at the exchange rate of 335 you buy euros against forints, exercising the right to buy the euro. The final result of the option strategy: (current EUR/HUF market rate - strike price) * option face value - 3,125,000 HUF
- EUR/HUF exchange rate is below 325 at maturity -> sells euros against forints at a rate of 325, making use of the right to sell the euro. The final result of the option strategy: (strike price - current EUR/HUF market rate) * option face value - 3,125,000 HUF
- EUR/HUF exchange rate is between 335 and 325 -> You will not exercise either option and will not exercise the right to buy the euro or sell the euro. The final result of the option strategy: -3,125,000 HUF
Benefits
For purchased options
- You can benefit from a positive shift, so you can earn extra returns by taking risks on the foreign exchange rate.
- The loss from a purchased option cannot be greater than the option fee paid for the option.
- The option can be closed with a reverse trade before expiry.
- No deposit required.
For sold options
- You can also benefit from market expectations that you would not be able to take advantage of with other investment products.
- The options premium will be credited on the second day after the transaction is made.
- With the options premium, you can earn extra income by choosing a strike price at which the option will not be exercised or at which you would have traded as originally intended.
- The option can be closed with a reverse trade before expiry.
Risks
For purchased options
- The cost of the option
- In case of a positive move, the cost is higher compared to the forwards transaction
For sold options
- The maximum amount of profit on the written option is the amount of the option premium, while the loss can be unlimited.
- The cost of closing an option depends on specific market conditions, which may exceed the closing cost of forwards of the same nominal value.
- It is a complex product, so identifying risks requires greater skill on
the part of clients.
The straddle option strategy includes two options: sell or buy a put option and a call option at the same time, with the same strike price and face value, for the same deadline.
- If you sell a straddle option strategy, your expectation is that the volatility will decrease, the price will move less than the premium you receive for the strategy.
Example transaction for selling EUR/HUF straddle
| Transaction parameters | |
|---|---|
| Duration | 6 months |
| Currency pair | EUR/HUF |
| Amount | EUR 500,000 |
| Spot rate EUR/HUF at the time of pricing | 329.00 (Reuters: EURHUF=D3) |
| Strike | 330.00 |
| Volume-based option premium in fillér | 810 fillér |
| Option premium expressed in HUF | HUF 4,050,000 |
- Transaction parametersTransaction parameters
- Duration6 months
- Currency pairEUR/HUF
- AmountEUR 500,000
- Spot rate EUR/HUF at the time of pricing329.00 (Reuters: EURHUF=D3)
- Strike330.00
- Volume-based option premium in fillér810 fillér
- Option premium expressed in HUFHUF 4,050,000
Possible outcomes at maturity
- EUR/HUF exchange rate is above 330 at maturity -> Due to the obligation to sell the euro, you have to sell the euro at a rate of 330 against the forint. The final result of the option strategy: (strike price - current EUR/HUF market rate) * option face value + 4,050,000 HUF
- EUR/HUF exchange rate is below 330 at maturity -> due to obligation to buy euros, you have to buy the euro at a rate of 330 against the forint. The final result of the option strategy: (current EUR/HUF market rate - strike price) * option face value + 4,050,000 HUF
Example transaction for buying EUR/HUF straddle
| Transaction parameters | |
|---|---|
| Duration | 6 months |
| Currency pair | EUR/HUF |
| Amount | EUR 500,000 |
| Spot rate EUR/HUF at the time of pricing | 329.00 (Reuters: EURHUF=D3) |
| Strike | 330.00 |
| Volume-based option premium in fillér | 950 fillér |
| Option premium expressed in HUF | HUF 4,750,000 |
- Transaction parametersTransaction parameters
- Duration6 months
- Currency pairEUR/HUF
- AmountEUR 500,000
- Spot rate EUR/HUF at the time of pricing329.00 (Reuters: EURHUF=D3)
- Strike330.00
- Volume-based option premium in fillér950 fillér
- Option premium expressed in HUFHUF 4,750,000
Possible outcomes at maturity
- EUR/HUF exchange rate is above 330 at maturity -> at an exchange rate of 330 you buy euros against forints, taking advantage of the right to buy the euro. The final result of the option strategy: (current EUR/HUF market rate - strike price) * option face value - 4,750,000 HUF
- EUR/HUF exchange rate is below 330 at maturity -> you sell euros against forints at a rate of 330, making use of the right to sell the euro. The final result of the option strategy: (strike price - current EUR/HUF market rate) * option face value - 4,750,000 HUF
Benefits
For purchased options
- You can benefit from a positive shift, so you can earn extra returns by taking risks on the foreign exchange rate.
- The loss from a purchased option cannot be greater than the option fee paid for the option.
- The option can be closed with a reverse trade before expiry.
- No deposit required.
For sold options
- You can also benefit from market expectations that you would not be able to take advantage of with other investment products.
- The options premium will be credited on the second day after the transaction is made.
- With the options premium, you can earn extra income by choosing a strike price at which the option will not be exercised or at which you would have traded as originally intended.
- The option can be closed with a reverse trade before expiry.
Risks
For purchased options
- The cost of the option
- In case of a positive move, the cost is higher compared to the forwards transaction
For sold options
- The maximum amount of profit on the written option is the amount of the option premium, while the loss can be unlimited.
- The cost of closing an option depends on specific market conditions, which may exceed the closing cost of forwards of the same nominal value.
- It is a complex product, so identifying risks requires greater skill on
the part of clients.
Experts
If you have any questions, feel free to contact us.
János Imrei
Head of Department
Edit Orsolya Kovács-Gyimóti
Deputy Head of Department
Borbála André
Sales
Nóra Gordos
Sales
István Fodor
Sales
Péter Huck
Sales
OTP Trader
Flóra Zsófia Margaritisz
Sales
OTP Trader
Nóra Simon
Sales
OTP Trader
Useful documents
These documents in English language to the person concerned
shall be for information purposes only. OTP Bank Plc shall fulfil its obligations imposed by the
legal regulations or requirement of supervisory authority by the documents in
Hungarian language.
In the
event of any discrepancy between the English language and Hungarian language
versions, the Hungarian language version shall prevail.
Information on the suspension of the market making obligation (available only in Hungarian)
Cross-Currency Interest rate swap
Dual currency structured investment
Forward deal in precious metals (gold and silver) transaction
Long-Term Investment Account T+3 FORWARD
Stock exchange spot transaction
Securities Lending Transaction
Senior Preferred Debt Securities Qualifying as Eligible Liabilities issued by OTP Bank plc
Notice on the uEMIR Notice se of LEI CODES
Disclosure of information pursuant to Article 11 (11) of the EMIR Regulation
Information for Clients on MiFID
Global Markets ex-ante cost transparency information (available only in Hungarian)
Systematic internaliser - quotes
Notice on the use of LEI CODES
Direct and indirect clearing services in respect of certain derivative transactions announcement
Notice - on the impacts of the pandemic emergency on the money and capital markets
Terms and conditions
Announcements
