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FX Barrier Options Factsheet PDF

Saxo Bank offers FX barrier options that provide traders flexibility to implement strategies based on their market views. Barrier options allow traders to buy single knock-in or knock-out options in 44 currency pairs. Knock-in options are activated if the barrier is touched before expiry, while knock-out options cease to exist if the barrier is touched. This allows traders to pay lower premiums than vanilla options depending on their outlook for volatility and whether the barrier will be breached. Saxo Bank provides pre-trade transparency on profits and losses as well as continuous monitoring of barrier triggers.

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202 views2 pages

FX Barrier Options Factsheet PDF

Saxo Bank offers FX barrier options that provide traders flexibility to implement strategies based on their market views. Barrier options allow traders to buy single knock-in or knock-out options in 44 currency pairs. Knock-in options are activated if the barrier is touched before expiry, while knock-out options cease to exist if the barrier is touched. This allows traders to pay lower premiums than vanilla options depending on their outlook for volatility and whether the barrier will be breached. Saxo Bank provides pre-trade transparency on profits and losses as well as continuous monitoring of barrier triggers.

Uploaded by

Robert
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© © All Rights Reserved
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FX BARRIER OPTIONS

VALUE PROPOSITION
Saxo Bank’s proposition to the FX options trader is truly unique given the quality of the analytics provided, the depth of the
product offering, and the level of service available. Saxo Bank provides access to a superior grade of trading capabilities that
affords the client maximum flexibility to implement trading strategies and market views.

Saxo Bank’s FX Barrier option offering provides the possibility to buy single Knock-In and Knock-Out options (no short positions
are currently offered), giving clients the opportunity to express a directional view by utilising the volatility of the underlying
currency pair.

EXAMPLE:
Knock-in: Spot EURUSD is trading at 1.1150. Will EURUSD trade below 1.0800 within 2 months, and will it be volatile?

Yes → Buy a 1.0800 Put option for expiry in 2 months with a knock-in at 1.1300. The option will only be triggered
once EURUSD touches 1.1300 at any time up to expiry.

Why do this ?

→ Buying a 1.0800 Vanilla Put option for expiry in 2 months will cost 55 USD pips

→ Buying a 1.0800 Put option for expiry in 2 months with a knock-in at 1.1300 will cost 19 USD pips

Knock-out: Spot EURUSD is trading at 1.1150. Will EURUSD trade below 1.0800, but not reach 1.1300 within 2 months?

Yes → Buy a 1.0800 Put option for expiry in 2 months with a knock-out at 1.1300. If spot touches 1.1300 at any time
up to expiry, it will be knocked-out and cease to exist.

Why do this ?

→ Buying a 1.0800 Vanilla Put option for expiry in 2 months will cost 55 USD pips

→ Buying a 1.0800 Put option for expiry in 2 months with a knock-out at 1.1300 will cost 43 USD pips


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OPEN ACCOUNT TODAY > TRY FREE DEMO FIRST >


FX BARRIER OPTIONS

CHARACTERISTICS & TRADING CAPABILITIES


Crosses: Available for trading in 44 currency pairs, to expiry. If a KI option barrier is touched up to expiry, the
depending on market liquidity. underlying vanilla option is activated. If a KI option barrier is
Type: Single Knock-In (KI) and Knock-Out (KO) options are not touched up to expiry, then it ceases to exist. If a KO
available. Possible KI and KO option combinations are up- option barrier is touched up to expiry, then it ceases to exist.
and-in (UI), up-and-out (UO), down-and-in (DI) and down- If a KO option barrier is not touched up to expiry, and the
and-out (DO). FX Barrier options are American-style options, underlying vanilla option is in-the-money, the option is
meaning that they can be triggered any time up to expiry. exercised.
The underlying Vanilla option is a European-style option. Venue: Clients can only trade Barrier options offline, via
Buy (Hold): Since Saxo Bank only offers the ability to buy voice execution. Clients are able to see positions in
Barrier options, the holder pays a premium representing the SaxoTrader (open positions view under exotic options) and
maximum loss. SaxoTrader GO (shown under other instruments), as well as
Amount: Minimum trade size of USD 3,000,000 equivalent. an indicative P/L. Pre-authorisation is required from Saxo
Maturity: Tradable tenors from 1 day to 12 months. Bank’s Global Sales Trading (GST) team to enable trading of
Barrier: The trigger level at which the Barrier option is this product.
knocked-in or knocked-out. Spread: Defined as the distance between the bid/ask price,
Price (premium): Determined by the value of the underlying which can vary depending on market liquidity and conditions.
currency and market volatility. P/L: The close price seen in the platform is an indicative price.
Trigger: Occurs when the spot price touches the pre- No Margin: The FX option margin calculation does not apply.
defined barrier at any time up to expiry Orders: Not available. Trading is only available offline.
Exercise/Expiry: A Barrier option is path-dependent, where Opening Hours: Open for trading 24/6 (like FX Spot and
the payoff depends on whether the underlying spot price Vanilla options)
has touched the pre-defined barrier (trigger) at any time up

MAIN BENEFITS OF BARRIER OPTIONS WITH SAXO BANK


• Full pre-trade transparency of potential profit and loss
• Limited risk in that the Barrier option cannot lose more than the respectivepremium amount
• Automatic continuous monitoring of market-trigger events
• Can be bought or closed until maturity

RISK WARNING: None of the information contained herein constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or
financial instrument, to make any investment, or to participate in any particular trading strategy. This material is produced for marketing and/or
informational purposes only and Saxo Bank A/S and its owners, subsidiaries and affiliates whether acting directly or through branch offices (“Saxo
Bank”) make no representation or warranty, and assume no liability, for the accuracy or completeness of the information provided herein. In providing
this material Saxo Bank has not taken into account any particular recipient’s investment objectives, special investment goals, financial situation, and
specific needs and demands and nothing herein is intended as a recommendation for any recipient to invest or divest in a particular manner and
Saxo Bank assumes no liability for any recipient sustaining a loss from trading in accordance with a perceived recommendation. All investments entail
a risk and may result in both profits and losses. In particular investments in leveraged products, such as but not limited to foreign exchange, derivates
and commodities can be very speculative and profits and losses may fluctuate both violently and rapidly. Speculative trading is not suitable for all
investors and all recipients should carefully consider their financial situation and consult financial advisor(s) in order to understand the risks
involved and ensure the suitability of their situation prior to making any investment, divestment or entering into any transaction. Any mentioning
herein, if any, of any risk may not be, and should not be considered to be, neither a comprehensive disclosure or risks nor a comprehensive
description such risks. Any expression of opinion may be personal to the author and may not reflect the opinion of Saxo Bank and all expressions of
opinion are subject to change without notice (neither prior nor subsequent). This disclaimer is subject to Saxo Bank’s Full Disclaimer available at
www.home.saxo/legal/disclaimer/saxo-disclaimer.

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