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Forex Options

Definition of Forex Options

Forex options are exchange-traded derivative contracts that give the right but not the obligation to buy or sell a pair of underlying currencies at a pre-agreed price and date. Forex options are also known as currency options.

Every forex option can be split into a call or put option. A forex call option gives the holder the right to buy underlying forex pairs while a forex put option gives the holder the right to sell underlying currency pairs.

In either case, there is no obligation to exercise the contract but there is a pre-agreed price and expiration date attached. In India, forex options are only available for the USD-INR currency pair.

Related Terms

Candlesticks

Candlesticks are technical charts used in trading to understand price movements. A candlestick chart will show the following information: There are three components to a call option:

  • High (for the period)
  • Low (for the period)
  • Open price
  • Closing price

The main body of the candle will be green if the closing price is higher than the opening price and red if the closing price is lower than the opening price.

Long green candles mean more investors and traders want to buy a stock. Long red candles mean more investors and traders want to exit a stock.

Cash Commodity

A cash commodity refers to physical goods like aluminium, cotton, gold, silver, zinc, and other tangible goods which are delivered to a trader or company most commonly after exercising derivatives like options and futures contracts.

Cash commodities are also known as actuals. A derivative contract for cash commodities will explicitly state the delivery date, price, and quantity. These details are necessary as some contracts may not involve the delivery of goods.

Abandoned Baby Pattern

An Abandoned Baby Pattern is a type of candlestick pattern that signals the reversal of a bullish or bearish trend. It is made up of three candles, each of which varies based on the trend.

Bullish Abandoned Baby Pattern


  • Candle #1: Red in color & forms during a downward trend
  • Candle #2: Forms a Doji Star below Candle #1’s closing price
  • Candle #3: Leads to a bullish trend & forms above the Doji Star (similar size to Candle #1)

Bearish Abandoned Baby Pattern


  • Candle #1: Green in color & forms during an upward trend
  • Candle #2: Forms a Doji Star above Candle #1’s closing price
  • Candle #3: Leads to a bearish trend & forms below the Doji Star (similar size to Candle #1)

Futures and Options

Futures and options are derivative contracts that derive their value from one or more underlying financial securities like stocks, bonds, interest rates, currencies, and commodities.

Every futures and options contract contains an expiration date and a price for the underlying that’s pre-agreed. Futures are a right and an obligation whereas options are a right but not an obligation to exercise the terms of the contract.

Butterfly Spread

A butterfly spread is an options strategy that combines bull and bear spreads to generate a small chunk of profit. To achieve this, a butterfly strategy consists of four positions in four options contracts that have the same expiration but different strike prices.

Income Statement

An income statement of a company is a document that displays crucial financial information like profit, loss, revenue, expenses, taxes, and more. Income statements are logically divided and published in monthly or quarterly manner for better accounting and financial modelling. A combination of these statements is what you see as the quarterly or annual report published by publicly listed companies.



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