Skip to content
Felix
  • Topics
    • My List
    • Felix Guide
    • Asset Management
    • Coding and Data Analysis
      • Data Analysis and Visualization
      • Financial Data Tools
      • Python
      • SQL
    • Credit
      • Credit Analysis
      • Restructuring
    • Financial Literacy Essentials
      • Financial Data Tools
      • Financial Math
      • Foundations of Accounting
    • Industry Specific
      • Banks
      • Chemicals
      • Consumer
      • ESG
      • Insurance
      • Oil and Gas
      • Pharmaceuticals
      • Project Finance
      • Real Estate
      • Renewable Energy
      • Technology
      • Telecoms
    • Introductory Courses
    • Investment Banking
      • Accounting
      • Financial Modeling
      • M&A and Divestitures
      • Private Debt
      • Private Equity
      • Valuation
      • Venture Capital
    • Markets
      • Economics
      • Equity Markets and Derivatives
      • Fixed Income and Derivatives
      • Introduction to Markets
      • Options and Structured Products
      • Other Capital Markets
      • Securities Services
    • Microsoft Office
      • Excel
      • PowerPoint
      • Word & Outlook
    • Professional Skills
      • Career Development
      • Expert Interviews
      • Interview Skills
    • Risk Management
    • Transaction Banking
    • Felix Live
  • Pathways
    • Investment Banking
    • Asset Management
    • Equity Research
    • Sales and Trading
    • Commercial Banking
    • Engineering
    • Operations
    • Private Equity
    • Credit Analysis
    • Restructuring
    • Venture Capital
    • CFA Institute
  • Certified Courses
  • Ask An Instructor
  • Support
  • Log in
  • Topics
    • My List
    • Felix Guide
    • Asset Management
    • Coding and Data Analysis
      • Data Analysis and Visualization
      • Financial Data Tools
      • Python
      • SQL
    • Credit
      • Credit Analysis
      • Restructuring
    • Financial Literacy Essentials
      • Financial Data Tools
      • Financial Math
      • Foundations of Accounting
    • Industry Specific
      • Banks
      • Chemicals
      • Consumer
      • ESG
      • Insurance
      • Oil and Gas
      • Pharmaceuticals
      • Project Finance
      • Real Estate
      • Renewable Energy
      • Technology
      • Telecoms
    • Introductory Courses
    • Investment Banking
      • Accounting
      • Financial Modeling
      • M&A and Divestitures
      • Private Debt
      • Private Equity
      • Valuation
      • Venture Capital
    • Markets
      • Economics
      • Equity Markets and Derivatives
      • Fixed Income and Derivatives
      • Introduction to Markets
      • Options and Structured Products
      • Other Capital Markets
      • Securities Services
    • Microsoft Office
      • Excel
      • PowerPoint
      • Word & Outlook
    • Professional Skills
      • Career Development
      • Expert Interviews
      • Interview Skills
    • Risk Management
    • Transaction Banking
    • Felix Live
  • Pathways
    • Investment Banking
    • Asset Management
    • Equity Research
    • Sales and Trading
    • Commercial Banking
    • Engineering
    • Operations
    • Private Equity
    • Credit Analysis
    • Restructuring
    • Venture Capital
    • CFA Institute
  • Certified Courses
Felix
  • Data
    • Company Analytics
    • My Filing Annotations
    • Market & Industry Data
    • United States
    • Relative Valuation
    • Discount Rate
    • Building Forecasts
    • Capital Structure Analysis
    • Europe
    • Relative Valuation
    • Discount Rate
    • Building Forecasts
    • Capital Structure Analysis
  • Models
  • Account
    • Edit my profile
    • My List
    • Restart Homepage Tour
    • Restart Company Analytics Tour
    • Restart Filings Tour
  • Log in
  • Ask An Instructor
    • Email Our Experts
    • Felix User Guide
    • Contact Support

FX Options

Define the mechanics of an FX option, the differences in the way FX option prices are quoted, and the wholesale market trading conventions. Understand the common approach to pricing in the FX option market and look at the risk measures used.

Unlock Your Certificate   
 
0% Complete

20 Lessons (68m)

Show lesson playlist
  • Description & Objectives

  • 1. FX Option Definition, Terminology and Convention

    05:43
  • 2. Payoff Profiles

    03:25
  • 3. Option Settlement

    02:28
  • 4. Option Settlement Workout

    04:54
  • 5. Quoting the Premium

    05:06
  • 6. Quoting the Wholesale Market

    03:28
  • 7. Premium Calculation Workout

    11:09
  • 8. Interbank Products

    02:50
  • 9. Premium Quote Workout

    02:59
  • 10. Quoting Butterflies and Risk Reversals

    04:48
  • 11. Modeling Choices

    01:29
  • 12. Calibrating the Vol Smile

    02:42
  • 13. Typical Smile - Skew Seen in FX

    03:19
  • 14. FX Option Risk Metrics

    00:42
  • 15. Delta

    03:57
  • 16. What is the ATM Strike

    01:35
  • 17. Gamma

    03:19
  • 18. Vega and Theta

    02:12
  • 19. Delta Hedge Workout

    02:38
  • 20. FX Options Tryout


Prev: Foreign Exchange and Commodities Next: Convertible Bonds

Payoff Profiles

  • Notes
  • Questions
  • Transcript
  • 03:25

Understand how the payoff of an FX option works, and which currency it naturally occurs in.

Downloads

No associated resources to download.

Glossary

Exercise Spot Strike
Back to top
Financial Edge Training

© Financial Edge Training 2025

Topics
Introduction to Finance Accounting Financial Modeling Valuation M&A and Divestitures Private Equity
Venture Capital Project Finance Credit Analysis Transaction Banking Restructuring Capital Markets
Asset Management Risk Management Economics Data Science and System
Request New Content
System Account User Guide Privacy Policy Terms & Conditions Log in
Transcript

When thinking about the payoff of an option, we are calculating what the positive value is to the buyer if the option is exercised. With stock options, if I own a 100 call on stock A, B, C, and the stock finishes at 110, my payoff is $10 per share.

With FX options, the payoff of an option naturally occurs in the quoted currency, so sticking with our euro dollar example from before, if we buy a euro call and the spot rate finishes above the strike, then our positive payoff will be measured in dollars. An example of this is coming up next.

If we want to calculate our payoff in the base currency, then we can simply divide by the prevailing spot FX rate on expiry. to get the amount.

Here we see the payoff of a 1.10 Euro dollar call option versus the terminal spot FX rate. Note that the payoff in the quoted currency dollars is linear, and when positive moves 1 for 1 with the underlying. The example illustrated here considers a spot FX finish at 1.20. In which case we would exercise our euro call, buy euros at 1.10, and simultaneously sell them back into the market at 1.20. For a fixed amount of euros, we would get a payoff of $0.10 per Euro.

If we want to see the payoff in the base currency instead, then we need to divide our quoted currency payoff by the prevailing spot rate at expiry. This will produce a non-linear payoff as the spot rate on expiry is driving both the quoted currency payoff and the divisors.

This may seem odd, but that is only because it is peculiar to be able to switch between the two sides of the price. In our case, euros and dollars. Options are normally the right to buy an asset, say a stock at a certain price in dollars. The payoff is linear in dollars, but what if we wanted our payoff to be in shares instead? In order to do that, we would need to convert our dollar cash payoff into shares by buying shares at the prevailing market price. This would then match the non-linear payoff we see in euros above. It would be odd to talk about the payoff of a stock option in shares, but because in FX our asset is just another currency, we can talk in these terms if we wish. It's however more conventional and simpler to talk and think of a linear payoff in the quoted currency.

Content Requests and Questions

You are trying to access premium learning content.

Discover our full catalogue and purchase a course Access all courses with our premium plans or log in to your account
Help

You need an account to contact support.

Create a free account or log in to an existing one

Sorry, you don't have access to that yet!

You are trying to access premium learning content.

Discover our full catalogue and purchase a course Access all courses with our premium plans or log in to your account

You have reached the limit of annotations (10) under our premium subscription. Upgrade to unlock unlimited annotations.

Find out more about our premium plan

You are trying to access content that requires a free account. Sign up or login in seconds!

Create a free account or log in to an existing one

You are trying to access content that requires a premium plan.

Find out more about our premium plan or log in to your account

Only US listed companies are available under our Free and Boost plans. Upgrade to Pro to access over 7,000 global companies across the US, UK, Canada, France, Italy, Germany, Hong Kong and more.

Find out more about our premium plan or log in to your account

A pro account is required for the Excel Add In

Find out more about our premium plan

Congratulations on completing

This field is hidden when viewing the form
Name(Required)
This field is hidden when viewing the form
Rate this course out of 5, where 5 is excellent and 1 is terrible.
Were the stated learning objectives met?(Required)
Were the stated prerequisite requirements appropriate and sufficient?(Required)
Were the program materials, including the qualified assessment, relevant and did they contribute to the achievement of the learning objectives?(Required)
Was the time allotted to the learning activity appropriate?(Required)
Are you happy for us to use your feedback and details in future marketing?(Required)

Thank you for already submitting feedback for this course.

CPE

What is CPE?

CPE stands for Continuing Professional Education, by completing learning activities you earn CPE credits to retain your professional credentials. CPE is required for Certified Public Accountants (CPAs). Financial Edge Training is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors.

What are CPE credits?

For self study programs, 1 CPE credit is awarded for every 50 minutes of elearning content, this includes videos, workouts, tryouts, and exams.

CPE Exams

You must complete the CPE exam within 1 year of accessing a related playlist or course to earn CPE credits. To see how long you have left to complete a CPE exam, hover over the locked CPE credits button.

What if I'm not collecting CPE credits?

CPE exams do not count towards your FE certification. You do not need to complete the CPE exam if you are not collecting CPE credits, but you might find it useful for your own revision.


Further Help
  • Felix How to Guide walks you through the key functions and tools of the learning platform.
  • Playlists & Tryouts: Playlists are a collection of videos that teach you a specific skill and are tested with a tryout at the end. A tryout is a quiz that tests your knowledge and understanding of what you have just learned.
  • Exam: If you are collecting CPE points you must pass the relevant CPE exam within 1 year to receive credits.
  • Glossary: A glossary can be found below each video and provides definitions and explanations for terms and concepts. They are organized alphabetically to make it easy for you to find the term you need.
  • Search function: Use the Felix search function on the homepage to find content related to what you want to learn. Find related video content, lessons, and questions people have asked on the topic.
  • Closed Captions & Transcript: Closed captions and transcripts are available on videos. The video transcript can be found next to the closed captions in the video player. The transcript feature allows you to read the transcript of the video and search for key terms within the transcript.
  • Questions: If you have questions about the course content, you will find a section called Ask a Question underneath each video where you can submit questions to our expert instructor team.