Vanilla options exchange
Select Page Vanilla Options Vanilla options are an agreement between two parties that gives the buyer of the option which will be you in almost all circumstancesthe right, but not the obligation, to buy or sell one currency in exchange for another at an agreed exchange rate on a predetermined date.
A premium is payable on vanilla options. The premium is payable within two business days unless you select a deferred premium. A deferred premium option is one that is settled at a date beyond the usual two business days typically upon expiry of the contract.
Please note that deferred premium vanilla options are not available to all SCOL customers. Upon expiry of the vanilla option, the buyer will either exercise their right to transact, or will allow the option to expire worthless. More details of how this works are below: Vanilla options exchange at the expiry date, the prevailing spot rate is less favourable than the strike rate of the option, it will be more advantageous for the buyer of the option to exercise his right to transact at the strike vanilla options exchange.
SCOL allows customers to trade offsetting FX transactions to close in the money option positions in the event that the underlying exposure, and therefore the need to transact, has ceased If at the expiry date the prevailing spot rate is more favourable than the strike rate of the option, it will be more advantageous for the buyer of the option to allow the option to expire worthless.
Furthermore, settlement of an exercised option is required within two business days of expiry. Current Forward Rate The forward rate for a six-month period is 1.
Solution The company buys a vanilla option for six months with a protected rate of 1. The premium is 2.
At maturity, the exchange rate is 1. The total cost also known as the effective hedge rate should be considered before entering into a vanilla option Key facts.