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Hi a call option is the right to buy an underlying currency (determine the underlying currency from the ‘currency of the contract’ and a put option is the right to sell the underlying currency, to determine whether to exercise or lapse for a call option eg option price $1.50, spot $1.5285, u buy the low number, thus exercise coz u benefit if u buy at the lower price of $1.50 than @ $1.5285. For put u sell the big number ( so u sell or exercise if the option price is higher than the spot rate, coz u get more money if u sell at the higher price
Hope that helps
Lynet: Nguyen’s question was about Interest Rate Options – not about currency options.
Nguyen: Your question is rather confusing. You do not choose whether to buy a put or a call option on the date you exercise it – you make the choice when you buy the option (and then on the date the loan starts you decide whether or not to exercise).
The rule about which to buy is as follows:
If you are borrowing money then you will always buy a put option.
If you are depositing money then you will always buy a call option.(For a full explanation of why this is the case (and later, whether or not you should exercise) you should watch the free lectures on interest rate risk.))
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