What is an FX Option?

[00:03] With FX Forwards, you have full protection. There is no benefit from positive moves in the currency, but you're also not harmed by any negative moves in the currency.

Now, what if you could protect the downside and still take advantage of the upside? That's where FX Options come in.

With FX Options, you pay a premium upfront, protect a certain level and get all of the upside. At expiry, if the market has moved in your favour, you simply transact at spot and enjoy the higher level. If the market has moved against you, you can exercise your option at the protection level and the premium is paid off.

In this way FX Options afford you the flexibility to:

1) establish a known worst case scenario; and

2) benefit from favourable moves in the currency.

Options can be quite expensive, but the benefit can outweigh the cost

[00:56] Options can be quite expensive, but the benefit can outweigh the cost. By reducing the amount of upside, you can reduce or even remove the cost of the premium. Zero-cost strategies will protect all or part of the exposure, yet participate up to a predetermined limit. Our job is to find the sweet spot between protection, upside and price, if any. ATB professionals can help you to tailor and options-based strategy to suit your specific needs.

To speak with our Financial Markets Group about which foreign exchange strategies might work for your unique international trade arrangements, contact our team directly at 1-855-282-3939 or financialmarkets@atb.com