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Jan 11 - 05:55 AM

EUR/USD - COMMENT-EUR/USD Bulls Should Look At Cheap EUR Call Options

By Richard Pace  —  Jan 11 - 04:21 AM

Those who believe the EUR/USD setback is temporary might consider simple EUR call/USD put options, which are now much cheaper, with ways of completely removing any costs.

EUR call options give holders the right to buy EUR/USD at predetermined levels (strikes) and expiries, for an upfront premium.
If EUR/USD is below the strike at expiry, then the option doesn't need to be exercised and only the premium, if any, is lost.

With EUR/USD currently trading 1.2190, a two-month-expiry 1.2500 EUR call costs $40 pips, down from $65 pips when EUR/USD was at 1.2300 last week.
This option will increase in value if EUR/USD recovers, allowing holders to buy EUR/USD at 1.2500 if spot is above, at expiry.

That option can be cheapened further by selling another EUR call strike higher up, although greater distance from current spot would involve selling more to offset the cost completely.
It risks losses if spot trades above the upper strike by expiry.
Strikes and maturities can be tailored to suit, but these EUR call spreads have proved popular among investors of late.

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Source:
Refinitiv IFR Research/Market Commentary

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