I have trouble understanding how those options are priced. To be more specific, I'll give an example.

I buy the following option:

PUT EUR/USD (Buy USD, Sell EUR)
Strike Price: 1.10
Expiry Date: 01 MARCH 2016
Price: $0.02625
Contract Size: EUR 100,000


Actually, if I input price 0.02625 and quantity 1 to my online broker, it presents me as final price: $2.625, so I suppose that I buy 100 contracts (and therefore I have the right to buy 11,000,000 USD for 10,000,000 euros)

Now suppose that on 01 March 2016, the current rate is 1.05 USD for 1 EUR. According to the data above, how much should my profit be? I would expect it to be:
USD 500,000 from the formula: (100 contracts)*[(100,000 EUR)*(1.10 USD)-(100,000 EUR)*(1.05 USD)]

On the other hand, it's impossible to make such a profit with a $2 investment, so what have I understood wrong about those options?

For more info about the options I'm asking about, you can check the EUREX FX Options webpage (can't post it here due to junk filter).

Hi @cbpapi,

the cost for options based on futures are different calculated than for equity based options.
You only buy 1 option for 1 future contract - there is no multiplication by 100 (by default).



For the FX option you refrence, eurex is stating the following:

Quoting 

Price quotation and minimum price change The price quotation is determined as a decimal number with five decimal places. The minimum price change is 0.00005, equivalent to a value of five units of the quote currency.

This mean with 1 FX option you get the right to exercise for 1 Lot (100.000 €) of FX Futures.
To calculate the €-value of the option you have to multiply the option price with the Tick value of the futures contract (0.0001 price change = 10€)

therefore you have to pay 2625 for an option value of 0.02625.


hope this helps
askerix

askerix 

Hi @cbpapi, the cost for options based on futures are different calculated than for equity based options. You only buy 1 option for 1 future contract - there is no multiplication by 100 (by default). For the FX option you refrence, eurex is stating the following: This mean with 1 FX option you get the right to exercise for 1 Lot (100.000 €) of FX Futures. To calculate the €-value of the option you have to multiply the option price with the Tick value of the futures contract (0.0001 price change = 10€) therefore you have to pay 2625 for an option value of 0.02625. hope this helps askerix

Your response was indeed very helpful. Thank you!