FX Options trading conditions
FX Vanilla Options
Forex Vanilla Options that are 'in the money' are automatically exercised at 10:00 am EST (New York cut) on the day of expiry. By default they are converted to a spot position.
Up until one hour before exercise you may choose between receiving the spot position ('spot') or having Saxo Capital Markets automatically exit the spot position at mid-price of the spread at the time of exercise ('cash'). There is not limit to the number of times you may change the exercise method.
The 'cash' exercise method is available on both long and short positions and will always happen at mid-spread - even in volatile market conditions.
If 'spot' exercise method is chosen, the spot position is subject to the usual profit/loss if the spot price moves from the exercise price. If you already have an offsetting position at the time of exercise, the exercised position will be netted out on the following day.
The majority of orders on FX Vanilla Options are handled automatically. That is, all orders below an auto execution limit, which varies by instrument, delta and maturity, are accepted without manual intervention by the dealing desk.
The auto execution limits are displayed in the trading platforms under Forex Options Trading Conditions.
Note that auto execution limits may be changed without prior notice under volatile or illiquid markets.
Saxo Capital Markets offers European style FX Vanilla Options, that is, option will be exercised or expire only at the expiry date and cut at 10:00 Eastern Standard Time (New York cut). Positions cannot be exercised prior to maturity.
Since Saxo Capital Markets always quotes both bid/offer prices, you are always able to close your position before maturity at the current market price. The long and short positions will then be netted out prior to expiry.
The offered maturities are standardised in the Options Board covering maturities from 1 day to 6 months. The Option Trade Ticket on your trading platforms offers shorter and longer maturities, i.e. from 1 day to 1 year.
You should be aware that in purchasing Foreign Exchange Options, your potential loss will be the amount of the premium paid for the option, plus any fees or transaction charges that are applicable, should the option not achieve its strike price on the expiry date.
Certain options markets operate on a margined basis, under which buyers do not pay the full premium on their option at the time they purchase it. In this situation you may subsequently be called upon to pay margin on the option up to the level of your premium. If you fail to do so as required, your position may be closed or liquidated.
If you write an option, the risk involved is considerably higher than buying an option. You may be liable for margin to maintain your position and a loss may be sustained well in excess of the premium received.
By writing an option, you accept a legal obligation to purchase or sell the underlying asset if the option is exercised against you; however far the market price has moved away from the strike. If you already own the underlying asset that you have contracted to sell, your risk will be limited.
If you do not own the underlying asset the risk can be unlimited. Only experienced persons should contemplate writing uncovered options, then only after securing full detail of the applicable conditions and potential risk exposure.
An option is categorised as a red product as it is considered an investment product with a high complexity and a high risk.
Saxo Capital Markets is required to categorise investment products offered to retail clients depending on the product’s complexity and risk as: green, yellow or red. Please refer to our "Product Risk Categorisation".