CHAPTER 5

Currency Futures, Options and Volatility

Tools to hedge and to speculate

Opening question

“Can I protect my dollar income against a rise of the dong with an option?”

In this chapter

How exchange-traded currency futures differ from forwards
Margin and daily settlement, and why they create leverage
Calls and puts: rights, not obligations
What sets an option premium, and why volatility matters most
Realised and implied volatility, smiles and skews
Floors, caps and collars, with a USD/VND worked example
The hidden dangers of selling options
Futures and options available in Asia and Vietnam

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This chapter is in the full book

Chapter 1 is free to read online. The full text of chapter 5 — with its tables, figures, worked examples and practice lab — is available in the complete edition of Forex and Crypto Investing: From Theory to Practice (Volume 3, NXW Investment Library).

Read Chapter 1 free Get the full book — [email protected]

Sections of this chapter

5.1 From forwards to futures

5.2 Margin, daily settlement and leverage

5.3 Options: rights, not obligations

5.4 What sets the price of an option

5.5 Volatility: realised and implied

5.6 Smiles, skews and risk reversals

5.7 Hedging structures: floors, caps and collars

5.8 The danger of selling options

5.9 Futures and options in Asia and Vietnam

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