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
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Cap Loss Forward

Also known as Limit Loss Forward

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Last updated 2 years ago

The Cap Loss Forward combines an OTM option with a synthetic forward. The strategy enables the client to gain the protection of a forward position, whilst at the same time limiting the maximum negative mark-to-market (loss) that would otherwise arise were the forward to settle OTM.

The strategy is typically offered as a zero cost solution where the cost of the OTM option is funded by adjusting the synthetic forward rate.

Payoff Diagram:

Payoff at Expiry:

At expiry if EURUSD fixes:

  • Above the Strike, the client is fully protected at the Strike on 100% of the Notional.

  • Below the Strike but above the OTM Call Strike, the client will find itself obligated to trade at the Strike level on 100% of the Notional.

  • Below the OTM Call Strike, the client rate will improve by 1pip for every pip that EURUSD fixes below the Call Strike.

    • Payoff = Min(Strike -(OTM Call Strike - Spot),Strike)

Cap Loss Forward Payoff Profile