EUR/GBP Currency Options

How the call and put work

A EUR call gives the right to buy EUR with GBP at an agreed rate. A EUR put gives the right to sell EUR for GBP. The buyer pays a premium for the right; the seller accepts the corresponding obligation.

The examples quote GBP per EUR. A higher number means EUR is stronger against GBP. In the EUR/GBP quotation, the first currency is the one being bought by a call on the pair.

The example contract

Assume a hypothetical vanilla option covering 100,000 EUR, with a strike of 0.86 GBP per EUR and a premium of 0.01 GBP per EUR. The total premium is GBP 1,000. These are illustrative negotiated terms, not a current quote or an exchange contract specification.

The calculations measure expiry intrinsic value in GBP. A physically settled contract exchanges currencies; an option on futures can create a futures position instead. The arithmetic alone does not specify the delivery method.

Buying EUR calls

A call gives its buyer upside exposure to the specified underlying. For this example, use a strike of 0.86 GBP per EUR and a premium of 0.01 GBP per EUR. With the stated multiplier of 100,000, the premium cost is GBP 1,000.

At expiration with the underlying at 0.89, intrinsic value is (0.89 − 0.86) × 100,000 = GBP 3,000. After the premium, the gain is GBP 2,000 before other costs.

At or below the strike, the call has no intrinsic value and loses its whole premium. Breakeven at expiration is 0.87 GBP per EUR. At 0.865, the call is in the money but still loses GBP 500 after the premium.

Buying EUR puts

A put gives its buyer downside exposure. Assume the same 0.86 strike and 0.01-unit premium, costing GBP 1,000 with the same multiplier. The equal call and put premiums are hypothetical, not a claim about actual market quotes.

At expiration with the underlying at 0.83, intrinsic value is (0.86 − 0.83) × 100,000 = GBP 3,000. Subtracting the premium leaves GBP 2,000 before costs.

At or above the strike, the put loses its full premium. Its breakeven is 0.85 GBP per EUR. At 0.855, it is in the money but still loses GBP 500 after the premium. Before expiration, time and implied volatility also affect the price; these expiry calculations do not predict its resale value.

Premium, timing and settlement

A correct price view does not guarantee a profit. The move must be large enough and arrive before expiry to recover the premium. Before expiry, time remaining and implied volatility affect the price available when selling to close.

The premium limits the standalone purchased option’s loss. Exercise can create another position requiring funding or margin, and keeping that position introduces further risk. An uncovered seller can lose much more than the premium received.

Continue learning

What moves EUR/GBP? — Economic news and market conditions explain the currency’s price movements. Study them after the call and put mechanics.

Where and how to trade EUR/GBP options — Compare access routes, quotation, contract size and what happens at expiry.

Currency option pricing — Learn how time, volatility and both currencies’ interest rates affect premiums.