Where to buy foreign currency options?

[Up4it]

Hi, I am brand new to this forum and FX ... so please be kind to me

I have done a search on this forum but could not easily find what I was looking for.
I have (a high 6 figure in) AUD online savings and would like to find a way to cover the risk of a weakening AUD against the USD at or until a certain point in the future.

Can someone recommend a credible Australian based broker who sells foreign currency options to secure AUD against a drop against the USD?

So this is what I mean:
Basically an option that gives us as buyers the right, but not the obligation, to enter into a foreign currency transaction at a pre-determined exchange rate (“strike price”) on a pre-determined date in the future (“expiry date”). Or, if possible (not sure if this exists) the right to do so at any point DURING a pre-determined time frame.

Say: I want to have the option to trade AUD300,000 for USD300,000 on 1st June 2014 - if the actual exchange rate would not be in my favour then!

How much would it cost to buy this option for instance? I have no idea...

I know about Ozforex who seem to have a solid reputation. The complication for me is that I am currently overseas and I am not sure when I will be back in OZ, so I might not even be able to open any account until I do.

 

[prawn_86]

Send me a PM. I work in FX

 

[Up4it]

With my post, I was hoping to attract some active discussion on foreign currency options and to learn how much this actually costs, based on some examples.

So I am inviting people with some knowledge and experience on the subject to participate openly (in the spirit of a forum!), not in a PM.

Kinda surprised that after 126 views, only one person responded. Are we all newbies here

 

[prawn_86]

Foreign currency options are an OTC product so there is no standardisation.

Cost will depend on account type, volume, volatility, targeted hedge rates, option structure (vanilla vs other types) etc etc. As such there is very little to discuss as every single option is going to be different

 

[village idiot]

I believe IG Markets make a market in currency options, or at least they used to. big spreads of course and presumably you couldn't actually deliver the currency but you could get a feel for how much they are trading for

 

[prawn_86]

I believe IG Markets make a market in currency options, or at least they used to. big spreads of course and presumably you couldn't actually deliver the currency but you could get a feel for how much they are trading for

Deliverable vs derivative are going to be priced completely differently unfortunately

 

[village idiot]

well I aren't called an idiot for nothing.

but tell me, if they were same currency pair , same expiry, same strike , why would they be priced completely differently? wouldn't that make for easy arbitrage?
if the one you call a derivative (thought all options were derivatives, even physical delivery ones) was somehow cheaper than the deliverable , otbe, you could take the position you wanted in the non deliverable, then later on close it out and make the currency trade at the prevailing rate. Same result except for the spreads/commissions, no?

 

[prawn_86]

well I aren't called an idiot for nothing.

but tell me, if they were same currency pair , same expiry, same strike , why would they be priced completely differently? wouldn't that make for easy arbitrage?
if the one you call a derivative (thought all options were derivatives, even physical delivery ones) was somehow cheaper than the deliverable , otbe, you could take the position you wanted in the non deliverable, then later on close it out and make the currency trade at the prevailing rate. Same result except for the spreads/commissions, no?

Bolded bit is the kicker.

And then there would transaction costs from taking delivery and then having to settle across to a different broker.

It would also only (theoretically) work for a vanilla deliverable option as far as I can tell, as all other option structures wouldn't be quoted via IB etc

 

[village idiot]

ok, we are on the same page then. sounds like a vanilla option was what he was after, and the spreads are wide but not necessarily prohibitive as a one off. the furthest out they do is sept anyway. out of interest, sept 95 put is around 2.1/2.3c just now

 

[prawn_86]

out of interest, sept 95 put is around 2.1/2.3c just now

Quoted completely differently. A deliverable vanilla you would owe a premium, which would depend on the amount you were hedging and then at expiry you would have the option depending on where the spot rate was at the time.

Options aren't my forte, but the firm I work for does deal with them

 

[village idiot]

A deliverable vanilla you would owe a premium, which would depend on the amount you were hedging and then at expiry you would have the option depending on where the spot rate was at the time.

yes that sounds like an option. the premium you would pay would be the amount you were hedging times 2.3c/$. they may quote it in $ or even IV , but it will be a similar amount however you structure the equation

 

[prawn_86]

yes that sounds like an option. the premium you would pay would be the amount you were hedging times 2.3c/$. they may quote it in $ or even IV , but it will be a similar amount however you structure the equation

So effectively 2.3%? I would almost guarantee you can get better out the OTC

 

[village idiot]

you might well be right. how about asking the blokes you work with what a sept 95 Put is worth now, just for the comparison, I would be interested to know myself

 

[Bort]

Saxo Bank have a reasonable offering plus they're not some firm that has popped up in the new age of retail fx. Deposits are guaranteed up to certain amount but the Danish govt if you're worried about your deposit.

Ig do offer a market as well.

There's also some ASX traded products like warrants that have similar features if you have a equity account and don't want more accounts. Spreads can be ordinary.

If your doing a one time transaction and you want to hedge in this manner the spread will always be wider than a spot transaction at whoever you deal with.

 

[PKScreamer]

Saxo Bank have a reasonable offering plus they're not some firm that has popped up in the new age of retail fx. Deposits are guaranteed up to certain amount but the Danish govt if you're worried about your deposit.

Ig do offer a market as well.

There's also some ASX traded products like warrants that have similar features if you have a equity account and don't want more accounts. Spreads can be ordinary.

If your doing a one time transaction and you want to hedge in this manner the spread will always be wider than a spot transaction at whoever you deal with.

Saxo Bank have an office in Australia 'Saxo Capital Markets' - Check them out http://au.saxomarkets.com/forex-options/ I'm trading Options with them at the moment and pretty happy.