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FX Options

Capital Markets

Bryn Mawr Trust provides market expertise and hedging solutions to help organizations and individuals manage their currency risk. Our team of experts dedicates time to understanding our customers’ needs; we structure hedging plans and products according to those specific needs.

Options are among the tools used to hedge currency risk. An option allows the purchaser to protect themselves against unfavorable movements in foreign currency exchange rates, while providing the flexibility to benefit from favorable market movements. It provides the customer with a right but not the obligation to exchange currency at a specified price called a strike rate. Options are sold for an upfront cost called a premium.

Option Pricing

  • Premiums are calculated by pricing models
  • Pricing models use several variables, including  market value, currency pair volatility, time to expiry,  strike rate and notional amount. 

Call vs. Put

  • Call – a right but not an obligation to buy at a specific strike rate
  • Put – a right but not an obligation to sell at a specific strike rate

FX Option Use Cases

  • Customers with uncertain exposure in currency
  • Customers with specific budgets
  • Customers needing to hedge, but also wanting some upside potential

Types of Options

  • Vanilla Options – Calls and Puts
  • Exotic Options – Barriers, Digitals, One-touch, No-Touch, Knock-ins, Knock-outs, etc. 
  • Option Strategies – a combination of several options, to reach specific customer goals

Advantages For Using Options

  • Insurance for adverse currency movement
  • Benefit from favorable currency movement
  • Customizable to customer needs
  • Can be transferable
  • Can be sold before maturity for residual value
  • No credit required – premium paid up front
  • BMT FX Specialists help evaluate customer needs and goals and recommend the best  and most cost-effective options.

Learn more about BMT Capital Markets