GBP/JPY Currency Options

What the call and put give you

A call locks in the right to buy GBP 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 JPY per GBP. A higher rate means a stronger GBP.

The example trade

Assume the underlying starts at 190 JPY per GBP. One option has a strike of 190, a premium of 3 and a multiplier of 100,000. The total premium is JPY 300,000. 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 GBP calls

You buy the call because you expect the underlying price to rise. At 198 JPY per GBP, the right at the strike is worth (198 − 190) × 100,000 = JPY 800,000. After the premium, your profit is JPY 500,000.

At 190 or below, the call expires without intrinsic value and loses its JPY 300,000 premium. Its expiration breakeven is 193 JPY per GBP. At 191.5, the price has risen but the trade still loses JPY 150,000.

Buying GBP puts

If you expect a fall instead, the put costs JPY 300,000 in this example. At 182 JPY per GBP, it is worth (190 − 182) × 100,000 = JPY 800,000. Your profit is JPY 500,000 after the premium.

At 190 or above, the put loses its entire premium. Its expiration breakeven is 187 JPY per GBP. A smaller fall to 188.5 still leaves a loss of JPY 150,000.

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

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

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

References

FX vanilla option trading conditions · Example of an OTC GBP/JPY put trade · CME: FX quote conventions · CME: FX products and specifications · Federal Reserve: monetary policy transmission · Options on futures: exercise and assignment