Currency Options BreAbout NSE National Stock Exchange of India Limited (NSE) is an electronic exchange with a nationwide presence. It offers, trading facility through its fully automated, screen based trading system. A variety of financial instruments, which includes, equities, debentures, government securities, index futures, index options, stock futures, stock options, currency futures, Interest rate Futures etc. are traded on, its electronic platform. NSE is the largest stock exchange in India, with a significant market share in equities and in derivatives (equities/equity indices/currency). It is also one of the leading global exchanges. NSE uses a state of the art telecommunication network to provide investors an efficient and transparent market. NSE has created new benchmarks in technology infrastructure, risk management systems, clearing and settlement systems, investor services and best market, practices, It has been in the fore front offering newer products in equities and derivatives and also new asset Classes for the investors to choose from.Notes How to use this booklet @NSE Each strategy has an accompanying graph at lower right hand corner showing profit and loss at expiration. The vertical axis shows the profit/loss scale. When pay-off line is below the horizontal axis it represents, the loss/outlay for the strategy. The portion of the pay-off line above the horizontal axis represents a credit or profit for the position. The intersection of the pay-off line and the horizontal axis, is the break-even point (BEP) not including transaction costs, commissions, taxes, margin costs etc. An illustrative example for the explained strategy and a pay-off table based on example are also provided for better understanding. Each contract used in the following ‘examples has a lot size of 1000 USD =h Strategy : Long Call + View: Very bullish on USD + Strategy: Buy call option mited to premium + Reward: Unlimited Breakeven: Strike price + Premium + Profit, whe! exercised ISD/INR goes up and option + Loss, when: USD/INR does not go up and option expires unexercised Notes ONSE sever Sioeree 200 mre prrten on bres) on snowy | Papatta | Payot | Paper mmh Strategy : Short Put + View: Not Bearish on USD + Strategy: Sell put option isk: Unlimited + Reward: Limited to premium Breakeven: + Profit, when: USD-INR does not go down and ‘option expires unexercised trike price - Premium + Loss, when: USD-INR goes down and option exercised Notes ONSE Traplel Pa Opn soa Spore aes stotave sirkePece 600 200059 | premen@) on rater sao cnesoiyey | pyc | Pasar | PoyONSE h Strategy : Call Spread S2QRE + View: Moderately bullish on USD ‘rape: Boy TH Call Opto ane Sl OT Cl Opn? + Strategy: Buying ITM Call and selling OTM call Tome oreo Tene thereby reducing cost and breakeven of ITM call amcarnmeree tee + Risk: Limited to net premium paid Tone [eae oo + Reward: Limited to the difference between the two remus [onwcatsnierees® [00 strikes minus net premium paid Girenn oa + Breakeven: Strike price of purchased call + Net Liocaaanal a premium paid + Max profit, when: both options exercised oes) | fommecat Papa + Max Loss, when: both options unexercised ne Notes “a aie | ae |ch Strategy : Put Spread @ NSE + View: Moderately bullish on USD ample: Sl OTM PuROpton and Buy 1 OTM PAR OpaN®| + Strategy: Sell OTM Put and buy further OTM put to or a ae protect downside SeroT Rep | —a6TO + Risk: Limited to the difference between the two scontna= | Paani) a strikes minus net premium received worouse | ayonmanariepne® | aaso + Reward: Limited to net premium received PaPeion 38 + Breakeven: Strike Price of short put -Net premium, Brake se received + Max profit, when: both options unexercised rene |founenat | towne | Powe + Max Loss, when: both options exercised “ Notes 700 20 1 |eh Strategy : Synthetic Call @ NSE « View: Conservatvly bullish on USD a RR «strategy Buy future and buy put option to protect com | tarae [we guns tneapected fall . c Limited to Future Price + Put Premium - Put “atin Sonera “se Strike Price Kents ain om « Reward: Unlimited + Breakeven: Future Price + Put Premium Sreakseen ue «Profit when: USD:NR goes up a + xs, hen S04N8 goes own anon some | tchoge | arty | trae wotes aS aHERI) susisn strategy : Covered call with Futures + View: Moderately Bullish on existing long future in portfolio + Strategy: Sell OTM call option to earn premium premium + Reward: Limited to Strike price- Future Price Paid + Premium received Breakeven: Future price paid -Premium Received + Max Profit, when: USD-INR goes up and option exercised + Loss, when: USD-INR goes down Notes inlimited if USD falls. Benefit to the extent of ONSE ‘empl: ting Lang Future anal! TIA Call Opton® vom | Senet soe awe rce a0 suite Pace 00 ro0nus Tamiami cos Beaker) on worn [eat | Prot ry sneer | tomraees | tomcat — | raat pacha ® | opensatdh Strategy : Collar + View: Conservatively bullish + Strategy: Buy futures, buy put to insure downside, sell call option to partly finance put : Limited + Reward: Limited Breakeven: Purchase price of futures Call premium + Put premium + Max profit, when: USD-INR goes up and call option exercised ‘+ Max Loss, when: USD-INR goes down and put ‘option exercised Notes ONSE Trample Raye wd Pa Opin Ce shat" Ca Onion con veoma [res ce we roam a Pe a coneae Parrenion om 1100050 [arse Pree a eatrenen oom seen we snernines | faamaper | rapon tomcat | Poeh Strategy : Long Combo + View: Bullish on USD + Strategy: Sell OTM put and buy OTM call option isk: Unlimited + Reward: Unlimited Breakeven: Call strike + Net premium + Profit, when: USD-INR goes up and call option exercised + Loss, when: USD-INR goes down and put option exercised Notes ONSE eal: Sl 107M Pt Option and Buy 1 OTIC Opion® oma [seer ese Tome RAPT co commas [PatPenion on e205 Pearse nce ae Caren 7 Takeo 7 eon | foam [tomcat | teat sna _|padandTEBE) scavish strategy Long put NSE + View: Bearish on USD ample aay Pooper + Strategy: Buy put option somnn | _spatrce ae + Risk: Limited to premium come Sonera eae + Reward: Unlimited onan oninet= | renin) oa + Breakeven: Strike Price ~ Premium + Profit, when: USD-INR goes down and option oko ow exercised + Max Loss, when: USD-INR goes up and option not usin | amin | wen | ne exercised ones | taretm | tarot | reat Notes wee 20 [aeHDD ssearisi strategy: short cat + View: Very bearish on USD + Strategy: Sell call option isk: Unlimited + Reward: Limited to premium Breakeven: Strike Price + Premium, + Max Profit, when: USD-INR goes down and option not exercised + Loss, when: USD-INR goes up and option exercised Notes 20 ONSE ‘samp Sell cal pont sn Spot 6a sce SrkePree®) 00 emus | Pein os resent) on cnwoer® | revatio | root | ripenHEBD ssearisi strategy : call spread @ NSE + View: Mildly Bearish on USD + Strategy: Sell TM Call and buy OTM Call option to ion | serie ue protect against unexpected rise Ieee + Risk: Limited to the difference between the two Yeannce |[ethenam oe strikes minus net premium rorouse— Ppoponcasinerae®) | ae + Reward: Limited to the net premium received Garena oe Breakeven: Strike Price of Short call + Net premium Baker 7 received + Max profit, when: USD-INR goes down and both swear | tmawca oman” | ropa options not exercised wet | poet) ‘+ Max Loss, when: USD-INR goes up and both m0 = vo [aw options exercised 8 a =| Notes 908 am [| xe | 00HD searish strategy : put spread @ NSE * View: Moderately Bearish on USD [eample: ey ITM Pat Open and Sell 1 OTPut Option? + srategy Buy TM Pat and sll OTM Put option to en ne ve + les Limited to net premium psd = = ‘+ Reward: Limited to the difference between the two “anos ‘Sell O1M Put Strike Price ®) 4850 Beakeve: Ske price oflongPut-Ne premium oa = pas + Max profit when: USD-NR goes down and bth Zon [ecm [ee] ae «Maz Lass when: USD-NR gost up and both cam | ae | a 3[EEE °2"* Stratesy Protective cally @NSE Synthetic Long Put SL + View: Bearish on UD but kep protected aguns ae ay ary unexpected vse cone [nance [aa + strategy: Sel futures buy cal option to protect agains tse in USD vem | cosaeree | ae + Risk: Limited to Call strike pice Futures pice + 1S" [nee Pee emi + Reward: Ualinted boston ue seven: Futures price-Cal premium + Profit, when: USD-INR goes down and option not vom [me | ma | Mae + Max Loss, when: USD-INR goes up and option a0 100 vo | nn Max Lats me} FG ote a Pa 7Put ONSE TBD carish strategy :cov + View: Neutral to Bearish on USD empl: Sly Ft and Sl Poop + Strategy: Sell futures, Sell OTM put option to earn a uo premium . limited ‘tg [ Resear 600 + Reward: Future price— Strike price + Put premium 00050 pemumd oa Breakeven: Futures price + Premium received yaaa Te + thax Prof when: USDANR goes down and option + Max Loss, when: USD-INR goes up and option not seen | oe” | Boone | Maen exercised seo | nde Notes 80 soo | 200 [inHEED neutral strategy :Long straddle 8 NSE + View: USD will experience significant volatility example: Buy alland Buy Put Option tame sh + Strategy: Buy all and buy put option of same oma] Beare eae strike price ome Lennar | + Risk: Limited to Premium paid 1eitice [earenon 3 + Reward: Unlimited me Pea Premium Ld Breakeven: Upper BEP = Strike Price of Long Call + ever Be? or Net Premium Paid oe tw a8 Lower BEP = Strike Price of Long Put- Net Premium Ta wa Paid enn | tocar root + Profit, when: One of the option exercised ae Rf ee | + Max Loss, when: Both the option not exercised aa aa [ae [oe Notes a8 ert se | 0 7HET neutral strategy: short straddle @ NSE + View: USD will experience very litle volatility Grape ua cuinsapuopuonn ioe + Strategy: Sell Call and sell Put option of same strike Soma Yaperice aaa Price Tame [Coleraine Pree Om . limited reantncrs [aren oa + Reward: Limited to Premium received e005 Ppaeremiomit oe Breakeven: Upper BEP = Strike price of short call + poner ner a7 Net premium received Toweraere or Lower BEP= Strike price of short pu - Net premium rn od we receives cowie) |tomcatate © | homPaalse)| Paya + Max Profit, when: Both the options not exercised _ — + Loss, when: one of the options exercised sm eo Notes aH Sep en | 0 2 =Neutral Strategy : Long Strangle + View: USD will experience significant volatility + Strategy: Strategy : Buy slight OTM call and put option Notes ONSE ‘ample: 8078 Cla Pur Option at arnt at woma | sare ae ~ rae i 8 Untied sowie [Pasieree [er Breakeven: Upper BE = Ske price of Cll Net peer wat see EF a7 Strike price of Put Net premium ——___—__— ne ofthe option exercised sine [ven] Sea | Mann + Max Loss, when: Both the option not exercxed am a 4HEDGE neutrat strategy short strangle + View: USD will experience very litle volatility + Strategy: Sell OTM Call and Put option premium Lower Be Notes ONSE one oa Tea mite Soeenee | Limited to premium received caren [9 Breakeven Upper 82 Ste pice fas Net a = a = ‘Strike price of Put- Net Premium Lewes SEP ar + Max Prot when: Soh the options nat exercised mee Bee | me [Se | hae + Less when: One of he options exercised set [ier asHEED neutral strategy :Long call Butterfly + View: Neutral on USD direction and bearish on volatility + Strategy OTM call + Risk: Limited to net premium paid + Reward: Limited to difference between adjacent strikes minus net premium debit Breakeven: Upper BEP = Higher Strike Price - Net Premium / Sell 2 ATM Call, Buy 1 ITM Call and Buy 1 Lower BEP = Lower Strike Price + Net Premium + Profit, when: ITM call exercised and other options not exercised ‘+ Max Loss, when: all options exercised or all options not exercised Notes a8 ONSE Tom | spare ass Se aT cal ae | — 2656 Galleon Ter Iona [gy ratca see RE | a5 area 30 By ornate | 2750 allreian om Upper Ber Tener BoP Tora] rapa en [Po am [Paya fom [Ne sven | ithe [ica [Sic | raERED) neutral strategy : short cal Butterfly + View: Neutral on USD direction and bullish on volatility + Strat OTM Call / Buy 2 ATM Call, Sell 1 ITM Call and Sell 1 + Risk: Limited to difference between adjacent strikes ‘minus net premium received + Reward: Limited to net premium received keven: Upper BEP = Higher Strike Price - Net Premium Lower BEP = Lower Strike Price + Net Premium + Max Profit, when: all options exercised or all ‘options not exercised + Loss, when: ITM call exercised and other options not exercised Notes ONSE “otine [Bupa cle | 650 Neer [Teal Pemian Tse 1eo0us0 Serta RT B50 al reum 0 SeloT cals | 0750 “Penn oe Upper aie Taser BOP a To pays tom Porat tom] Prat tom | Wah hung) foanucar [erent | rome” | rte poche @ [la _| ldHEED neutral strategy : Long call Condor @ NSE + View: Range bound market Taek [ema Ta + Strategy: Buy 1 ITM Call (Lower strike“A"), Sell 1 ITM. arene 17 Call Lower midale“®", Sell 1 OTM Cal (Higher a middle °C"), Buy 1 OTM Call (Higher strike “D") Se — + Risk: Limited to difference betiveen the lowers Sime or spread less the higher strike spread less premium Soe e a paid aT + Reward: Limited. Max profit when USD/INR between ea ar serand'c* reakeven: Upper BEP = Highest Strike Price - Net sneer toot [ton | tn | ton" | Paro Premium, Lower BEP = Lowest Strike Price + Net Premium ae = + Max Profit, when: option"A & 8” exercised 250 2 + Max Loss, when: all options exercised or all options esr ar not exercised an z Notes a = 2 =[EEZA neutral strategy : short Call Condor + View: Market will break-out trading range, but direction is uncertain + Strategy: Sell TM Call Lower strike"), Buy 1 ITM {Call (Lower midale*B"), Buy 1 OTM Call (Higher middle °C), Sell OTM Cal Higher strike*D") + Risk: Limited, Max loss when USD/INR between"" and" + Reward: Limited, Price move above the*D" or below‘A" skeven: Upper BEP = Highest Strike Price -Net Premium Lower BEP = Lowest Strike Price + Net Premium + Max Profit, when: all options exercised or all options not exercised + Max Loss, when: option“A & 8" exercised Notes ONSE Tome | sore ory re Senna Etre 77 Tale O91 seyoMncaseneT CR | wae aterm a3 Salone A [ ea “al remun oo appa 8e wat awed 7 sara Tore Porat |e ese 2m em | Sef sar | ee | oniceke ae eennncmn a[EE] neutral strategy : Long Box or Conversion @ NSE To take advantage of temporary mis-pricing of Tamper alse sh Sel Sea ‘options in the market TORR [ere a + Strategy: Buy Call strike’ sell Call strike "8: buy Sinem 5 “ Put strike”B" and sell Pur strike "A"; Where B>A a — + Rsk: None, No effect of price change Ser — + Reward: Fixed ((B-A)-Net Premium Debit) senerreese + Max Profit, when: Always Sere + Max Loss, when: No effect of price change vom|ua [ua low ow Ie ein amet |foncal|tonne tow rarer | soca at | pcnses aK Notes sa} — sat arfEZ Neutral Strategy : Short Box or Conversion 8 N SE To take advantage of temporary mis-pricing of cone a, options in the market, GORA sper | + strategy: Buy all’ sel Call’ buy Put‘Aand coe 7 sell Put“B"; Where B>A Temnce | [-ponertsca am + Rsk: None No fect of price change weve | Roane — + Reward Fed (8A Net Premio Cre) erie * Max Profit, when: Always Sere Price 46.) + Max Loss, when: Never No effect of price change om mow |ow pon [ow he ran e|fomtafecsta tent tne [ane 2 prose oo [peo Notes ge tae} attest atGlossary ‘the money (TM: Any options atthe money fhe sti pie qualtathe thet ree ounce BrealeSven Poin (BEP: The rice at which an option statgy resus Inneter spot or ee. Call An option contact that gives the holder the sight 1 buy the Uderygataspected pre fora certain feed pred tine Inthe money (TIN cll pion i vthesmoney the tke ce i ines than the masel pic of the underyng. pul option Inebemaney the ste pices greater than the mace ce af he Lang postion: A potion wherein an investor it 2 net holes in 2 ut-ofthe-money (OTM: A cll option is out-otznemancy If the Sunk price eater than the markt price ofthe underng Ap ‘pions eut-otheroney 2 hese price ss than he mate price ofthe unaettnng Premium: The price a pte call buyer must ay to apt orl seler Iwrter Toran epton contact. Market supply and demand fres tdetermine the erin Put: An option contrat that gives the holder the right ta sll the Undelyongataspeces pre fora certain fed pred ine Strike price er erie pric: The tated price per unity fo hich the ungeripag maybe purchase nthe case cll of sald in the {diel pul by he option baler up exereveaf he opto contact fas the same rsi/reward profle as 4 strategy involving only one Time decay or erorion: A erm used 1 aesenbe how the sre vale of option can ‘ceayoecuce wi the passage of tne Volatility &rneasure of she fuctuation in the marke pice ofthe Under, Nathemascalh,voltity ts the annualzed standard tdesstonoretame so Notes @NSE