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).