EUR/GBP Currency Options

What the call and put give you

A call locks in the right to buy EUR at the strike exchange rate. A put locks in the right to sell it there. Paying the premium gives the buyer a choice; it does not oblige the buyer to exercise.

All example rates are GBP per EUR. A higher rate means a stronger EUR.

The example trade

Assume the underlying starts at 0.86 GBP per EUR. One option has a strike of 0.86, a premium of 0.01 and a multiplier of 100,000. The total premium is GBP 1,000. Prices and premiums are hypothetical; the call and put use equal premiums to make the comparison easy.

The following results are at expiration, before fees. If exercise creates another position, the calculations assume that position is immediately closed at the stated value.

Buying EUR calls

You buy the call because you expect the underlying price to rise. At 0.89 GBP per EUR, the right at the strike is worth (0.89 − 0.86) × 100,000 = GBP 3,000. After the premium, your profit is GBP 2,000.

At 0.86 or below, the call expires without intrinsic value and loses its GBP 1,000 premium. Its expiration breakeven is 0.87 GBP per EUR. At 0.865, the price has risen but the trade still loses GBP 500.

Buying EUR puts

If you expect a fall instead, the put costs GBP 1,000 in this example. At 0.83 GBP per EUR, it is worth (0.86 − 0.83) × 100,000 = GBP 3,000. Your profit is GBP 2,000 after the premium.

At 0.86 or above, the put loses its entire premium. Its expiration breakeven is 0.85 GBP per EUR. A smaller fall to 0.855 still leaves a loss of GBP 500.

Before expiration

You can sell an option to close when a market is available. Its resale value also depends on time remaining and implied volatility, so the expiration breakevens do not determine every earlier trading result.

The purchased option can lose its full premium. Exercise may create a separate position or funding obligation. Selling an uncovered option can produce losses larger than the premium received.

Continue learning

What moves EUR/GBP? — Compare the two economies, central-bank expectations and market flows.

Where to trade EUR/GBP options — Check the access route, premium currency and settlement terms.

Currency option pricing — Learn how time, volatility and interest-rate differences affect premiums.

References

CME cross-rate options rules, Chapter 301A · Dealer FX option conventions · CME: FX quote conventions · CME: FX products and specifications · Federal Reserve: monetary policy transmission · Options on futures: exercise and assignment