determining factor is whether or not the spot is above or below the strike at the
time of expiry.
Double knock-in = A double knock-in option is a standard type of option that
automatically appears if one of the formerly specified exchange rates (or an
exceeding level) is dealt in the spot market before expiration. The double knock-in
then becomes a standard (= plain vanilla) option.
Double knock-out = A double knock-out option is a standard type of option that
automatically disappears if one of the formerly specified exchange rates (or an
exceeding level) is dealt in the spot market before expiration.
Double one touch = A double one touch is a transaction where a specified
amount will be paid on the delivery date only if spot has dealt (exceeding) one of
the two exchange rates previously specified before expiration.
European (style) option = An option which can only be exercised on the option's
expiration date.
Exercise = To make use of the right which is possessed by a party to an option
contract, e.g. the right to buy. Upon receipt of notification of intention to exercise
the right, the seller of the option is obligated to deal with the option buyer in
accordance with the terms agreed.
Expiration date = The date on which the right of the buyer of an option to
exercise the option shall lapse.
Historical volatility = Contrarily to implied volatility that represents the actual
volatility, historical volatility is based on the past.
Implied volatility = A quantification of the standard deviation of the exchange
rate or of the interest rate used to calculate the price of their derivatives for an
over-the-counter option market. Volatility rates are quoted at levels, which take
into account dealer’s expectation of future market movements.
In-the-money = An option is in-the-money when the forward price of the
underlying instrument is lower than the strike price of the put option or the price of
the underlying instrument is higher than the strike price of the call option.
Intrinsic value = The amount by which an option is in-the-money (on a mark to
market basis).
Knock-in = A knock-in option is a standard type of option, which automatically
appears if a formally specified exchange rate or an exceeding level is dealt in the
spot market before expiration. Knock-in option reaches the instrike point when the
spot rate moves towards ‘out-of-the-money’. Reverse knock-in option (or ‘kick-inoption’)
reaches the instrike point when the spot rate moves towards ‘in-themoney’.
Knock-out = A knock-out option is a standard type of option, which automatically
disappears if a formerly specified exchange rate or an exceeding level is dealt in
the spot market before expiration. In the knock-out option, the spot rate moves
towards ‘out-of-the-money’ in order to reach the outstrike. Reverse knock-out
option (or ‘kick-out-option’) reaches the outstrike point when the spot rate moves
towards 'in-the-money’.
No touch = No touch is a transaction where a specified amount will be paid on the
delivery date only if the spot rate is not dealt at the touchstrike or an exceeding
exchange rate level previously specified before expiration. No touch is also called
‘lock out’.
One touch = One touch is a transaction where a specified amount will be paid
only if the spot rate is dealt at the touchstrike or an exceeding exchange rate