What is an option?

An option is a contract with strictly defined terms that gives the buyer the right, but not the obligation, to buy or sell currency at a specified price on a specified date in the future. Types of options:

1. A Call option gives the buyer the right (but not the obligation) to buy currency at a preselected exchange rate on the option expiration date.
2. A Put option gives the buyer the right (but not the obligation) to sell currency at a preselected exchange rate on the option expiration date.