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Forex Options (futures options)

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Hopeful

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I've just been looking into futures options. What am I misunderstanding here:

Expiry: June 8th, 2007
Strike: 0.0087 (call option)
Quote: 0.00004
Multiplier: 12500000
Value per point: 1 point is 0.000001 , it is worth
$12.50 per point (the minimum fluctuation)
Exchange: CME or Globex (Globex is active during the
daytime in Japan)

Example Trade:

Purpose: to hedge against JPY moving above 0.0087 (ie
114.95 yen per dollar).

Buy: June 8th, 2007 Call option at 0.00004 = 0.00004 x
12500000 = 500 yen per contract (the premium you pay
for the call).

Payoff: For each point above 0.0087 at expiry you will
get $12.50 USD. For example, if JPY goes to 0.009091
(110 yen per dollar) you will get 391 points or
391x12.50=$4887.50 (about 540000 yen).

Does this look right? If so it means I can buy an option for 500 yen and potentially make $4887. Can't be right. Help? Thanks folks.

http://www.cme.com/trading/prd/contract_spec_JY2466.html
http://www.cme.com/trading/prd/contract_spec_opt_JY2466.html
http://www.interactivebrokers.co.uk...te=IB&conid=39665113&detlev=2&sess=1176269791
 
Hopeful said:
I've just been looking into futures options. What am I misunderstanding here:

Expiry: June 8th, 2007
Strike: 0.0087 (call option)
Quote: 0.00004
Multiplier: 12500000
Value per point: 1 point is 0.000001 , it is worth
$12.50 per point (the minimum fluctuation)
Exchange: CME or Globex (Globex is active during the
daytime in Japan)

Example Trade:

Purpose: to hedge against JPY moving above 0.0087 (ie
114.95 yen per dollar).

Buy: June 8th, 2007 Call option at 0.00004 = 0.00004 x
12500000 = 500 yen per contract (the premium you pay
for the call).

Payoff: For each point above 0.0087 at expiry you will
get $12.50 USD. For example, if JPY goes to 0.009091
(110 yen per dollar) you will get 391 points or
391x12.50=$4887.50 (about 540000 yen).

Does this look right? If so it means I can buy an option for 500 yen and potentially make $4887. Can't be right. Help? Thanks folks.

http://www.cme.com/trading/prd/contract_spec_JY2466.html
http://www.cme.com/trading/prd/contract_spec_opt_JY2466.html
http://www.interactivebrokers.co.uk...te=IB&conid=39665113&detlev=2&sess=1176269791
Click to expand...

The quotes I have on my screen atm are 34 bid 37 ask (0.000034 0.000037). So to buy the option would cost $462.50.. that's US DOLLARS (not Yen)and your profit if @ 0.009091 at expiry would be $4887.50 - $462.50 = $4425.00 ex commish

The underlying contract is trading at 0.008450 so your 0.008700 call option is substantially out of the money and IV @ ~9% is the reason it is cheap.

ATM (0.008450) June calls are 98 bid 102 ask so these are $1275.00 cost to give a comparison.

FWIW 9091 is a long way away with this sort of volatility... serious YTC unwind territory.

Cheers
 
Thanks a lot. Of course it's in USD not YEN you flaming moron:banghead: (talking to myself of course). What would I do without you, Wayne? Next, you shall solve one of the world's most perplexing problems: Women. may they never expire worthless.
 
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