EAKO - User Guide
  • Guides
  • EAKO User Guide
  • Glossary
  • Strategies
  • Call Option
  • Put Option
  • Synthetic Forward
  • Extendible Forward
  • Risk Reversal / FX Collar
  • Participating Forward
  • Cap Loss Forward
  • Knock-In Forward
  • KIKO
  • Fade Forward
  • Ratio Knock-Out Forward
  • TARF
  • Liability Knock-Out TARF
  • EKI TARF
  • Pivot TARF
  • EKI Pivot TARF
  • Barrier Options
    • Introduction
    • Types of Barriers
    • Time Aspect
    • Knock-In
    • Knock-Out
    • Knock In Knock-Out
  • Variations on Barrier Options
    • Double Knock-In
    • Double Knock-Out
    • European Knock-Out
    • Knock-In European Knock-Out
    • Knock-Out European Knock-Out
    • Performance Knock-In
    • Performance Knock-Out
    • Partial Knock-In
    • Partial Knock-Out
    • Partial Double Knock-Out
    • Forward Knock-In
    • Forward Knock-Out
    • Forward Double Knock-Out
    • Forward Knock-In Knock-Out
    • Knock-Out with Rebate
    • Discrete Knock-Out
Powered by GitBook
On this page
  • Long Call
  • Short Call

Call Option

PreviousGlossaryNextPut Option

Last updated 2 years ago

Calls provide protection against adverse exchange rate movements. In return for this protection, the client pays a premium for the option. If the option is exercised, there is physical delivery of the underlying currency.

A Call gives its holder the right to buy a given quantity of a currency in return for another currency at a predetermined strike price, at a future date (European style Call) or until a future date (American style Call). At expiry, the holder of the Call has unlimited upside potential if the spot rate is higher than the strike price. If it ends up lower than the strike price, the Call is not exercised and the loss is limited to the amount of the option premium.

Long Call

Payoff Diagram:

Direction Assumption: Bullish

Maximum Profit: Unlimited

Maximum Loss: Limited to Premium paid

Breakeven Price: Strike Price + Premium paid

Theta: Passage of Time -> Negative Effect

The time value of the Long Call's premium, which the holder has "purchased" by paying for the option, generally decreases or decays with the passage of time. Theta decrease accelerates as the option contract approaches expiration.

Volatility:

If Volatility increases -> Positive Effect.

If Volatility decreases -> Negative Effect.

Short Call

Payoff Diagram:

Direction Assumption: Bearish

Maximum Profit: Limited to Premium received

Maximum Loss: Unlimited

Breakeven Price: Strike Price + Premium received

Theta: Passage of Time -> Positive Effect The time value of the Short Call's premium, which the option seller has "collected" by selling the option, generally decreases or decays with the passage of time. Theta decrease accelerates as the option contract approaches expiration.

Volatility: If Volatility increases -> Negative Effect. If Volatility decreases -> Positive Effect.

Long Call Payoff Profile
Short Call Payoff Profile