How Options Work

Options are an extremely versatile trading instrument. Since options cost less than the underlying asset (in this case the currency pair), they provide a high upside approach to trading with limited downside risk. There are two kinds of options: calls and puts. Call options give you the right to buy the underlying asset. Put options give you the right to sell the underlying asset. In other words, option buyers have the right, but not the obligation, to buy (in the case of a call) or to sell (in the case of a put) the underlying currency at a specified strike price until the expiration date of the option. Buying a call is done when you believe the underlying instrument is likely to rise in price. Buying a put is done when you believe the underlying instrument is likely to fall in price.

There are no margin requirements if you want to purchase an option because your risk is limited to the price of the option. GCI's online trading system allows for buying options and closing out these positions.

To trade options, you must be acquainted with the select terminology of the option market. The price at which an underlying currency can be bought or sold if the option is exercised is called the strike price. Options are available in several strike prices above and below the current price of the underlying currency.

The date the option expires is referred to as the expiration date or Expiry. The option Expiry is specified by the GCI client before the option is priced and purchased.

The price of an option is called the premium. An option's premium is determined by a number of factors including the type of option (call or put), the current price of the underlying currency pair, the strike price of the option, the time remaining until expiration, and volatility. An option premium is priced on a per lot basis. Buying an option creates a debit in the amount of the premium to the buyer's trading account. GCI's trading software will quote the premium in terms of both the "Option Price" (the cost in pips of the option) and the "Option Cost" (the total dollar cost of the option).

How Options Work Review

Options give you the right, but not the obligation, to buy or sell an underlying instrument.
Options are good for a specified period of time, after which your GCI account is credited with the in-the-money value. That is, the amount by which the underlying price has risen above the strike price (for a call) or fallen below the strike price (for a put).
Options are available in several "strike" prices.
The cost of an option is referred to as the "premium". The price reflects a variety of factors including the type of option, the current price of the instrument, the strike price of the option, the time remaining until expiration, and volatility.
The option "premium" is debited from your GCI account at the time of purchase.
Options are currently available on all major currencies in GCI's ICTS Forex trading accounts.

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