What are currency option contracts and how are they structured?
Answer
Answer
Just as you can trade futures in currency pairs, you can also trade options in currency pairs. You will get options of different strikes with most of the volumes concentrated around the near ITM and near OTM options only. Options are limited risk instruments and that is what makes the attractive to traders.
Symbol
USDINR
EURINR
GBPINR
JPYINR
Market Type
N
Instrument Type
OPTCUR
OPTCUR
OPTCUR
OPTCUR
Option Type
Premium style European Call & Put Options
Premium
Premium quoted in INR
Unit of trading
1 contract unit denotes USD 1000
1 contract unit denotes EUR 1000
1 contract unit denotes GBP 1000
1 contract unit denotes JPY 100000
Underlying / Order Quotation
The exchange rate in Indian Rupees for US Dollars
The exchange rate in Indian Rupees for Euro
The exchange rate in Indian Rupees for Pound Sterling
The exchange rate in Indian Rupees for 100 Japanese Yen
Tick size
0.25 paisa i.e. INR 0.0025
Trading hours
Monday to Friday 9:00 a.m. to 5:00 p.m. IST
Contract trading cycle
3 serial monthly contracts followed by 3 quarterly contracts of the cycle March/June/September/December
No. of Strikes
Minimum 12 In-the-money, Minimum 12 Out-of-the-money and 1 Near-the-money. (25 CE and 25 PE)
Strike price intervals
INR 0.25
INR 0.25
INR 0.25
INR 0.25
Price Operating Range
A contract specific price range based on its delta value is computed and updated on a daily basis
Quantity Freeze
10,001 or greater
Base price
Theoretical price on the 1st day of the contract. On all other days, DSP of the contract.
Initial margin
SPAN Based Margin
Extreme loss margin
1.5% of Notional Value of open short position
Settlement of premium
Premium to be paid by the buyer in cash on T+1 day
Settlement
Daily settlement: T + 1 Final settlement: T + 2
Expiry/Last trading day
Two working days prior to the last business day of the expiry month at 12:30 pm.
Final settlement day
Last working day (excluding Saturdays) of the expiry month. The last working day will be the same as that for Interbank Settlements in Mumbai.
Position limits
Mode of settlement
Cash settled in Indian Rupees
Final settlement price (FSP)
RBI reference rate on the date of the expiry of the contact
When you buy options, it only attracts the premium margins. That is your total cost and also your worst case loss in the market. However, when you sell options, your margining will be exactly like you bought or sold futures on that pair.