Option barriers

I have an account with FXCM, and in their sqawk box, they talk about Do Not Touch and exotic option barriers. What is an option barrier, and why would it be DNT or exotic?

Hello SoFlPippin!

I hope u understand what are CALL and PUT options. They are most simple, basic and most common used options.

CALL - An option contract giving the owner the right (but not the obligation) to buy a specified amount of an underlying security at a specified price within a specified time.

PUT - An option contract giving the owner the right (but not the obligation) to sell a specified amount of an underlying security at a specified price within a specified time.

Sometimes people call those simple options also plain vanilla options. Plain vanilla means that they are simple and standard options. A normal option with no special or unusual features. But if there is even one extra condition or someting different to standard option contract, basically u can call this option contract exotic option. So exotic options are non-standard options.

BARRIER OPTION - is exotic option whose payoff depends on whether or not the underlying asset has reached or eceeded a predetermined price. Thatswhy option barriers are so important. There is always interest to avoid specific price level or vice versa: reach a specific price level.

Double No-Touch Option - is barrier option, is exotic option whose payout depends on price movements. It gives profit to investor if the price of the underlying asset does not reach or surpass one of two predetermined barrier levels. DNT options are used during consolidation phase.

Knock-Out Option - is barrier option, is exotic option. If a specified price level be exceeded, this kind optoin will expire worthless. Again there is always interesr to reach or not to reach specific price level. Knock-Outs are mainly used for commodities and currencies.

Knock-In Option - is barrier option, is exotic option that begins to function as a normal option only when ("knocks in") a certain price level is reached before expiration. As long as this certain price level is not reached, it is techincally not a option.


Resume: option universe is quite big. Examples here dont show the whole range of barrier options but whenever someone talks about barrier options, be alert. Barrier levels are important because in order to happen something, underlying price must reach a certain price level. Option writers or options buyers are interested to protect or reach this specific price level.

Thank you very much That makes things very easy to understand.

I found some interetsing stuff on RBC website. PDF files with short descriptions about option products. Pretty good stuff

"Foreign Exchange Sales and Trading
Product Explanation

The following documents provide a brief explanation of some of the FX and option products that we offe:"

Link is here

Hello,

Does anyone know where barrier options are traded? And if there is any retail market?

Best regards
Paul

nobody knows?

Barrier options as well as all other options in FX space are usually OTC products. And usually not for small retail clients. If you are bigger or institutional client and are trading through professional ECN-s and brokers then you will gain access to OTC and to many other more specific instruments and research also.

If you are retail client, i dont believe you can find a good exotic option broker for FX.

Thanks Birkz,

do you know what size you need to round about?
Thanks and have a good weekend!

Pokpok, i am not familiar because i am not interested in trading FX optsions.

But maybe you will find your answer if you browse these sites for more information (look for prime brokers list also to find a qualified broker):

FX options

http://www.ise.com/WebForm/options_p...rue&link1=true
http://globalmarkets.standardcharter...s/files/fx.jsp
http://www.icap.com/markets/foreign-...x-options.aspx
http://www.saxobank.com/?id=916
http://globalmarkets.standardcharter...s/files/fx.jsp
http://www.cfosfx.com/
http://www.ozforex.com.au/
http://www.fxmarketspace.com/

And maybe you will find more information on opton market players in Euromoney FX poll 2008
http://www.euromoney.com/Article/1924841/Article.html

thanks a lot

Hello again,

as we talked before about a single barrier options, I have a question about the double barrier options. Here is a great definition from sitmo.com (which has an excellent calculators for all kinds of options):
"Double barrier options are vanilla call and put options that are either activated or canceled based on the underlying reaching either a lower or upper barrier"
I was wondering if there is an double barrier options which knocks-in at one barrier and then gets knocked-out at the other barrier?
I would call it Knock-in Knock-out Option!
Does anyone know if such thing exists? Would be really happy for any support.
Best regards
Paul

Even if it exists, its extremely exotic and definitely not a regular product waiting for you on the shelf.

Really great i like it thanks for share those i m new here but i have learn different -2 concept