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training_data/curated/text/5fc62798cef3ef21c501b8facdf2ff2f4f75e5b559c737e2eebc2c1214d04e5f.txt

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+672 Part V: Index Options and Futures 
+Japanese yen. Futures trade in these same currencies on the Chicago Mercantile 
+Exchange. Hence, many traders of the physical options use the Chicago-based 
+futures as a hedge for their positions. 
+Unlike stock options, currency options do not have standardized terms - the 
+amount of currency underlying the option contract is not the same in each of the 
+cases. The striking price intervals and units of trading are not the same either. 
+However, since there are only the six different contracts and since their terms corre­
+spond to the details of the futures contracts, these options have had much success. 
+The foreign currency markets are some of the largest in the world, and that size is 
+reflected in the liquidity of the futures on these currencies. 
+The Swiss franc contract will be used to illustrate the workings of the foreign 
+currency options. The other types of foreign currency options work in a similar man­
+ner, although they are for differing amounts of foreign currency. The amount of for­
+eign currency controlled by the foreign currency contract is the unit of trading, just 
+as 100 shares of stock is the unit of trading for stock options. The unit of trading for 
+the Swiss franc option on the PHLX is 62,500 Swiss francs. Normally, the currency 
+itself is quoted in terms of U.S. dollars. For example, a Swiss franc quote of 0.50 
+would mean that one Swiss franc is worth 50 cents in U.S. currency. 
+Note that when one takes a position in foreign currency options (or futures), he 
+is simultaneously taking an opposite position in U.S. dollars. That is, if one owns a 
+Swiss franc call, he is long the franc (at least delta long) and is by implication there­
+fore short U.S. dollars. 
+Striking prices in Swiss options are assigned in one-cent increments and are 
+stated in cents, not dollars. That is, if the Swiss franc is trading at 50 cents, then there 
+might be striking prices of 48, 49, 50, 51, and 52. Given the unit of trading and the 
+striking price in U.S. dollars, one can compute the total dollars involved in a foreign 
+currency exercise or assignment. 
+Example: Suppose the Swiss franc is trading at 0.50 and there are striking prices of 
+48, 50, and 52, representing U.S. cents per Swiss franc. If one were to exercise a call 
+with a strike of 48, then the dollars involved in the exercise would be 125,000 (the 
+unit of trading) times 0.48 (the strike in U.S. dollars), or $60,000. 
+Option premiums are stated in U.S. cents. That is, if a Swiss franc option is 
+quoted at 0. 75, its cost is $.0075 times the unit of trading, 125,000, for a total of 
+$937.50. Premiums are quoted in hundredths of a point. That is, the next "tick" from 
+0.75 would be 0.76. Thus, for the Swiss franc options, each tick or hundredth of a 
+point is equal to $12.50 (.0001 x 125,000).