Foreign Exchange Options Usher In New Opportunities

If enterprises with foreign exchange demand are worried about the further depreciation of the renminbi, they can adopt the strategy of selling the dollar call option.

Taking the market price in December 29th as an example, the US dollar's RMB forward exchange rate is around 6.39, and the option price of the 1 year European dollar call option (parity option) with a price of 6.39 is about 600. If the enterprise has 100 million US dollars in settlement 1 years later, the enterprise can get the option fee income of 6 million yuan when the option contract is signed.

At the time when the contract expires, if the US dollar spot rate is below 6.39 (6.34), the banks will not have the right to make the settlement at the spot exchange rate, but because the enterprise has obtained the premium income, it is equivalent to the settlement at the price of 6.40 (6.3400+0.0600) (ignoring the time value of the currency), which is far better than not using the option.

However, compared with the execution price of 6.39 forward settlement, if the US dollar spot rate falls below 6.33 (6.30), the forward contract yields more than 600 points (6.39-6.30>0.06), and the use of forward settlement contracts is more advantageous.

At the time when the contract expires, if the US dollar spot rate is between 6.39-6.45 (6.40), the bank will exercise the option, and the enterprise will settle the foreign exchange at 6.39 of the price. At this time, the situation of the enterprise is the same as that of the signing of the forward settlement contract, and it will get 639 million RMB settlement income. However, the 600 option premium when the enterprise sells the right period is an additional "welfare", which is equivalent to the enterprise's settlement at the price of 6.45 (6.3900+0.0600).

Compared with direct spot settlement, the selling of dollar call options is also a better strategy.

When the contract expires, if the USD spot rate is above 6.45 (for example, 6.48), the bank will exercise the option. At this time, the enterprise will make a settlement at 6.39, plus the 600 point option income. The actual income is smaller than the spot settlement, but it still has to be higher than the forward settlement agreement.

Overall, in addition to

At the maturity date, the spot rate of US dollar is much lower than the execution price, otherwise the selling of US dollar call option is better than signing the forward settlement agreement.

Even if the US dollar spot rate is lower at maturity, the strategy is

It is also far better than direct spot settlement.

For companies worried about the devaluation of the renminbi, the strategy is better than the forward settlement.

"Buying US dollar put option" is another option for enterprises to replace long-term settlement.

Obviously, the higher the execution price is, the more advantageous the option buyer will be and the higher the option fee will be.

The 29 day 1 year implementation price of 6.39 US dollar put option rate is about 600 points (the same as the call option). If the enterprise disagrees with the higher option fee, it can lower the price.

For example, the US dollar put option at a price of 6.32 is about 300 points.

Once the US dollar appreciates significantly at maturity, the strategy of buying US dollar put option can make the company benefit much more than the forward settlement contract. Even if the expected appreciation of the US dollar is lost, the enterprise will get at least 6.29 of the "bottom guard" income.

In the process of improving the RMB exchange rate marketization mechanism, the market volatility and the differentiation of investors' expectations provide an opportunity for the development of foreign exchange options.

Enterprises and banks can gradually cultivate the domestic option market from simple options, and create more risk aversion for enterprises in the future.