What a currency option buys
A conventional currency option specifies two currencies, an amount, a strike exchange rate and an expiration. The buyer pays a premium for a contractual right. The seller receives the premium and must fulfill the contract if exercise or settlement requires it. An option can expire unused; that flexibility is what distinguishes it from an obligation to exchange currencies.
Read the underlying carefully. An OTC EUR/USD option may describe an exchange of euros for dollars. An exchange-listed euro option may instead be an option on a euro futures contract. The economic exposure can be related without the contracts being interchangeable.
Read the pair from left to right
In EUR/USD, the euro is the base currency and the dollar is the quote currency. An illustrative rate of 1.10 means one euro costs 1.10 dollars. A rise to 1.15 means the euro has strengthened against the dollar. In USD/JPY, the dollar is the base, so a rising number means the yen has weakened against the dollar.
Buying a call on euros against dollars gives a right to buy euros and sell dollars. In that sense, it is also a put on dollars against euros. Dealers may describe the same economic exchange in different ways, so confirm both currencies and the quote convention rather than relying on the word “call.”
