FX Options

[nbvcxzdz]

Hi,

If I have a property in Japan that I want to sell and then from the sale , change the money into NZD. I dont know the price at which I will sell the property all i know is I want to sell it within the next 12 months and dont want to be exposed to negative turn in exchange rates between the NZD and YEN.

Are FX currency option premiums based on the amount you actually want to exchange? i.e does it matter if my house sells for 800,000 Yen or 900,000 Yen? When premiums are calculated are they a flat percentage regardless of the amount you actually want to trade or is it dependant to the amount you want to trade? Can I buy an option now or do I have to wit until I sell the property?

Thanks

 

[prawn_86]

If you are setting it up under a personal name (not a company) then i doubt you will be able to even trade options. By definition they are for sophisticated investors, and the risk the broker would take on, selling to an individual is probably too great

 

[nbvcxzdz]

I plan to do this through a financial adviser but I want to understand the process. If you could help me in understanding how a Fx options would work in this case that would be appreciated.

 

[prawn_86]

I plan to do this through a financial adviser but I want to understand the process. If you could help me in understanding how a Fx options would work in this case that would be appreciated.

I think its a bit of a moot point, because your financial adviser will still need a broker to make the market for them. So unless your adviser (not you) is taking out the contract (unlikely) then you wont be able to find a broker willing to take on the counterparty risk of an individual. A bank might, but i also doubt it.

Re the basic mechanics (very quickly). You need to take out the option for the full amount, if you are over or under on delivery you will either need to buy at the spot rate (if under) or sell back a portion (if over) to the spot market at a profit/loss.

An option is an option to purchase so yes you can buy one now.

Premiums will be based on your risk profile etc so expect a hefty one if you can find someone willing.



Anyone else can add to this if they feel i have missed anything

 

[nbvcxzdz]

So just to confirm FX options are always for a fixed amount(face value). For example it would have to be for an exact amount e.g 900,00 Yen, not UP TO 900,000 Yen?

Is there anyway of hedging the entire house value that it may be eventually sold for without dealing on the spot market? Or it it impossible to completely hedge the Fx risk in my case?

Are there any zero premium cost strategies? My guess is there isnt.

What if it were a FX forward exchange contract? Does the same prinicple apply? Is it always specified in the contract that it is for a specific amount only, not a range say (500,000 Yen to 900,000 Yen)?

THanks

 

[Tanaka]

Talk to ozforex.com.au, I've never used fx options. I have used them and am very happy with their service. I remember reading something about locking in exchange rates for later delivery of money and other options for individual and companies moving money.

 

[prawn_86]

So just to confirm FX options are always for a fixed amount(face value). For example it would have to be for an exact amount e.g 900,00 Yen, not UP TO 900,000 Yen?

Is there anyway of hedging the entire house value that it may be eventually sold for without dealing on the spot market? Or it it impossible to completely hedge the Fx risk in my case?

Are there any zero premium cost strategies? My guess is there isnt.

What if it were a FX forward exchange contract? Does the same prinicple apply? Is it always specified in the contract that it is for a specific amount only, not a range say (500,000 Yen to 900,000 Yen)?

Both options and forwards are for a fixed amount otherwise the risk is too extreme for the seller. I would highly doubt, as an individual, you could get any zero premium strategies. If seeling through a company you could possibly look at a collar, or a knock-in/out but thats getting complex and i dont actually sell options myself (only basic knowledge) so dont want to give the wrong info

The co i work for (competitor of OzForex) wont even give forwards with no deposit to sole traders or individuals.

Talk to ozforex.com.au, I've never used fx options. I have used them and am very happy with their service. I remember reading something about locking in exchange rates for later delivery of money and other options for individual and companies moving money.

What your mentioning would be a forward. See above comments

 

[nbvcxzdz]

I cant see then how anyone could have a zero premioum strategy?? Even if it were a multi-national company, becuase the price that the property will be sold is unknown there will be some spot trading to cover the gap.

Otherwise say in a perfect world the face value exactly matched what the property was sold for, then could a collar strategy be used?

Thanks

 

[nbvcxzdz]

What counterparty risk would a individual be? Its only for the premium of the fx option. The ability of an individual to then exercise the option will depending on having the right amount of money from the sale of the house otherwise no loss to the person selling the option.

Is this right?

Thanks