Forex Call Options

Here's the guide on Forex Options Trading you needed to know:

What are Forex Call Options?
A forex option gives you the right but not the obligation to buy or sell a currency pair at a certain price on a certain date. The certain price in this case is called the 'strike price'. That is the option gives you the flexibility of choosing where you want to buy or sell the currency pair. The certain date in this case is called the 'expiry' or the expiration date of the option.

Forex Options Non Direction Trading

If you think that the market is going to go up then you would buy a call option. Likewise, if you think that the market is heading down, you would buy a put option. The seller (or "writer") of the forex call option is obligated to sell the currency pair should the buyer so decide. The buyer of the call option pays a fee (called a premium) for this right. The buyer of forex call options wants the price of the chosen currency pair to rise in the future; the seller either expects that it will not, or is willing to give up some of the upside (profit) from a price rise in return for the premium (paid immediately) and retaining the opportunity to make a gain up to the strike price.

Forex Options Non Direction Trading

Forex call options are most profitable for the buyer when the price of the chosen currency pair has moved up past the strike price greatly. When the price of the chosen currency pair surpasses the strike price at the time of expiration, the option is said to be "in the money". When the price of the chosen currencystays at or around the strike price at the time of expiration, the option is said to be "at the money". When the price of the chosen currency pair goes under the strike price at the time of expiration, the option is said to be "out of the money".

Forex Options Non Direction Trading

However, to be truly profitable, the gains resulting from the upward movement must also cover the cost of buying the forex call option (premium paid). For example, if the cost (premium) of buying a call option expiry in 1 week's time is 120 pips then the chosen currency pair must move upwards more than 120 pips past the strike price. If it rises 300 pips above the strike price by expiration your profit would be (300 pips - 120 pips) 180 pips!