Currency Option
a.k.a. FX option
A contract giving the right, but not the obligation, to exchange currencies at a set rate before or on a…
In plain English
A contract giving the right, but not the obligation, to exchange currencies at a set rate before or on a set date.
A currency option lets you lock in a rate without being forced to use it. A call on EUR/USD pays off if the euro rises above the strike; a put pays off if it falls. You pay a premium up front for that right.
Companies use them to hedge; traders use them to bet on direction or on volatility. Large option strikes near the current price can pull spot around as they approach expiry.
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