Česky
KB EU POINT
 NEWS |
Currency Option (European type)
Currency Option is intended for:
Individuals as well as legal entities including municipalities, nationals as well foreigners, requesting hedging of the foreign currency risk resulting from a possible - from the client's point of view - negative development of the given currency pair.
Characteristics of Currency Option:
Currency Option represents a right (an option) to buy or sell a given amount in one currency for another currency, for the rate (Strike) agreed in advance by counterparts, on the declared date (not later than 1 year).
The option to buy a given instrument is named call option, the option to sell is named put option.
The instrument, in the case of Currency Option, is understood by a purchase or sale a given amount at a rate agreed in advance by counterparts.
The minimal nominal of one deal amounts to USD 50,000 or its equivalent in other currency dealt on the inter-bank market.
The Currency Option can be concluded in all currencies listed on the table of exchanges of Komerční banka, a.s.
There are two parties to every option: the buyer and the seller.
The buyer of a call option may, but is not obliged to, buy the instrument on the expiry date, and the seller is then obliged to deliver the instrument with the spot value date, that is on the expiry date + 2 business days.
The buyer of a put option may, but is not obliged to, sell the instrument on the expiry date, and the seller is then obliged to buy the instrument with the spot value date, that is on the expiry date + 2 business days.
The buyer of the option pays the seller the option premium.
The deal is always concluded with the Sales dealer by phone.
The client receives deal confirmation containing the agreed parameters of the deal.
Risks
The potential for a profit or a loss from deals denominated in a foreign currency is influenced by the movement of foreign exchange rates.
The purchase of the option involves a smaller risk than its sale. The maximal risk when buying the option is limited by the premium.
When selling the option, the risk is significantly higher, the loss of the seller of the option can significantly exceeds the premium received, the risk is unlimited.
The seller of the option accepts the obligation to buy or sell the underlying instrument.
If the option is exercised, the seller of the option find himself/herself in the situation when the actual market price of the sold underlying asset sold by him/her can be significantly higher than the Strike, or the other way, the actual market price of the purchased underlying asset sold by him/her can be significantly lower than the Strike (that he/she is obliged to pay).
Risks, example of Call Option:
A client bought a Currency Option from the bank, to buy EUR 1 mil. / sell CZK, the expiry date in one month.
Strike 27.565. The client pays the bank the premium of EUR 4300.
On the expiry date, the actual FX rate is 26.565.
The client does not exercise the option. The loss of the client from the concluded deal is limited by the paid premium of 4300 EUR.
Risks, example of Put Option:
A client sold a Currency Option to the bank, to sell EUR 1 mil. / buy CZK, the expiry date in one month.
Strike 27.565. The bank pays the client the premium of EUR 4100.
On the expiry date, the actual FX rate is 26.565.
The bank exercises the option. The client received the premium of EUR 4100 from the bank, but his/her loss of CZK 1 mil. significantly exceeds the amount of received premium.
Benefits of Currency Option:
- possibility of securing currency (FX) risk for the option buyer
- the opportunity to profit from auspicious development of the exchange rate also for the buyer
- gaining of premiums on the part of the option seller
- arrangement of the deal over the phone
Currency Option allows you to:
- if you are buying a Currency Option - you can secure your currency risk in a manner, which allows you to use the agreed exchange rate on the agreed date, or not (if the current market exchange rate on the agreed date is more advantageous than the agreed rate)
- if you are selling a Currency Option - you can gain an option premium
How can you obtain a Currency Option?
If you are interested in gaining more information about this product or would like to arrange it directly, visit any branch of KB or call free of charge on the KB Info line 800 111 055.
